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Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 Balfour Beatty is an international infrastructure group that delivers world class services essential to the development, creation and care of infrastructure assets; from finance and development, through design and project management to construction and maintenance; either alone or in partnership and by integrating local supply chains.

Contents FINANCIAL PERFORMANCE

Strategic Report Group revenue Pre-tax profit1 IFC Financial Performance IFC Financial Summary 01 Chairman’s Review 02 Our Group at a Glance +1% –32% 04 Chief Executive’s Report 2013 £8,745m 2013 £187m 06 Business Model 2012 £8,656m 2012 £277m 08 Market Overview 10 Our Strategic Objectives & KPIs 2011 £8,654m 2011 £292m 12 Strategic Objectives 20 Principal Risks Underlying earnings per share1 Dividends per share 24 Chief Financial Officer’s Review 28 Performance Review 36 Directors’ Valuation of PPP Concessions –37% 14.1p 38 The Way We Work 2013 20.0p 2013 14.1p Governance 2012 31.7p 2012 14.1p 44 Chairman’s Introduction 2011 31.2p 2011 13.8p 46 Board of Directors 48 Directors’ Report 68 Remuneration Report Financial Summary (£m unless otherwise specified) 2013 2012 Change (%) Financial Statements Revenue including joint ventures and associates 10,118 9,966 2 86 Independent Auditor’s Report Group revenue 8,745 8,656 1 88 Financial Statements Profit from continuing operations 98 Notes to the Financial Statements – underlying1 203 284 (29) Other Information – reported 48 154 (69) 158 Unaudited Group Five-Year Pre-tax profit from continuing operations Summary – underlying1 187 277 (32) 159 Shareholder Information – reported 32 147 (78) Earnings per share from continuing operations – underlying1 20.0p 31.7p (37) – basic 2.5p 17.9p (86) Dividends per share 14.1p 14.1p – Financing – net cash borrowings before PPP subsidiaries (non-recourse) (66) 35 – net borrowings of PPP subsidiaries (non-recourse) (354) (368) Key to Further Content: 1 From continuing operations, before non-underlying items. 2012 restated in accordance with Note 38 on page 145. Read more on p00

Read more online balfourbeatty.com/ar2013 Group KPIs p10 1

top-flight experience in change management and a strong business CH AIRMAN’S to business client focus honed in an international environment. Two non-executive Directors retired R EVIEW from the Board during the year: Hubertus Krossa, following the decision to divest the 2013 was a challenging year for Balfour Beatty, Group’s Mainland European rail operations; and Mike Donovan having served eight with a disappointing 37% decline in earnings years on the Board, including as chair of per share as the result the Business Practices Committee. We thank both for their valued contributions. • Operational issues within the UK Construction At the end of the year, we also said goodbye to Robert van Cleave, CEO business have been actively addressed. of Construction Services US and to Mike Peasland, previous CEO of our UK construction business. I would like to • Profitable order book growth in the recovering wish both all the best for their retirements US and UK infrastructure markets is the overriding and thank them for all their efforts within priority for 2014. the business. Employees and safety Our employees have worked tirelessly throughout the year to meet our clients’ expectations. The Board thanks them for their personal commitment. Despite Secondly, the profitable Australian overall measures of accident and injury professional services business had levels continuing to improve, five to cope with the need to significantly employees of subcontractors lost downsize its operations, given the rapid their lives during the year whilst on duty. collapse in local resources and mining This is a matter of huge regret to everyone related investment. Operating costs, involved; every incident has been including headcount, have been exhaustively investigated to determine aggressively reduced. Every effort has whether changes to our processes been made to retain essential capabilities or procedures can reduce future risk. to benefit when sector reinvestment The way we work p38 progressively occurs, albeit this will inevitably take some time. Ongoing priorities Despite short term earnings declines, The majority of the Parsons Brinckerhoff the Board is proposing to hold the final Revenue from continuing operations worldwide business, the US construction dividend of 8.5 pence per share (2012: including joint ventures and associates business and Support Services all 8.5 pence), resulting in an unchanged increased by 2% in the year to performed broadly in line with expectations. £10,118 million. Underlying pre-tax profits full-year dividend of 14.1 pence. The Infrastructure Investments division of £187 million were down 32%, most of It is right that recent challenges allied had an excellent year, successfully which occurred in the first half of the year. to recovery potential in our two largest recycling capital in line with its long term The full-year underlying EPS declined markets will impact on our operational strategy, and generating £82 million by 37%. The year-end order book was focus in 2014. The main priority is to profits on the sale of mature PFI assets broadly flat at £13.4 billion. recommence profitable order book growth in the process; this outcome was ahead in recovering US and UK infrastructure Most parts of the Group delivered of expectation and £45 million above markets, where the Group’s largest acceptable operating results in still highly Directors’ valuation. competitive infrastructure markets; businesses are based. Expansion into however the year presented two particular Chief Executive’s Report p4 new and emerging markets will be limited for the immediate future. Although the challenges. In April, it was announced Year-end net debt was £66 million, albeit Group’s balance sheet remains strong, that the UK construction business would the operating cash outflow of £162 million with sources of funding now well deliver substantially lower profits. This during the year was disappointing, diversified, improving underlying arose from a combination of order book not helped by first half issues within cash generation is also a key priority. and margin contraction in both the Major Construction Services UK. Projects and the Regional business; but Discretionary investment beyond was not helped by a major consolidation Board the ongoing recycling of PPP capital and reorganisation project being There were a number of Board changes proceeds will be deliberately prioritised implemented at the beginning of during the year, it was announced in to ensure that this is achieved. the year, with an erosion of operating January 2013 that Ian Tyler would step management’s focus as a result. Since down as Chief Executive at the end of that time, major changes have been March 2013, and that Andrew McNaughton made to improve operational delivery would be appointed to succeed him. and also ongoing profitable work winning Belinda Richards and Bill Thomas joined capability, including a number of new the Board as non-executive Directors divisional management appointments. with effect from 1 September 2013. Steve Marshall Second half profitability has improved In combination, they bring to the Board Chairman materially as a result.

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Professional OUR GROUP Services Our Professional Services business is a global player in design, planning and AT A GLANCE programme management and a market leader in transportation and power.

Our four businesses draw on more than 100 What we do years of experience to deliver the highest levels • Programme and project management of quality, safety and technical expertise to our • Construction management clients, principally in the UK and the US, with • Project design developing businesses in Australia, Canada, • Technical services the Middle East and South East Asia. • Planning • Consultancy

With proven expertise in delivering infrastructure critical to Key highlights support communities and society today and in the future, • Order book increases in the US and our key market sectors focus on: Middle East offset by the impact of Australia and minor movement in Infrastructure Complex buildings the UK business • Transportation • Commercial • Profitability impacted by significantly lower volumes in Australia (roads, rail and aviation) • Social • Ongoing strength in core US • Power and energy transportation and market development • Water in key markets including Middle East and Canada expected in 2014.

Business Model p6 Professional Services p28

£10 billion Revenue2 generated 2 Revenue this year 16% by region total revenue2

UK £4,607m North America £3,921m Rest of World £1,590m £1,533m Order book

£1,661m 2 40,000 Revenue Employees worldwide £54m Profit from operations1

1 From continuing operations before non-underlying items. 2 From continuing operations including joint ventures and associates.

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Construction Support Infrastructure Services Services Investments We manage strong construction Our Support Services business provides A leader in UK and US PPP and businesses in the UK, US, outsourced maintenance, upgrade other investments, our Infrastructure the Middle East and South East Asia. and management services in power Investments business has a proven transmission, utilities infrastructure track record of developing and financing What we do and road and rail. projects over the last 15 years. • Civil and ground engineering What we do What we do • Rail engineering • Upgrade and maintain water, gas • Operate a UK portfolio of concessions, • Building and electricity networks mainly in education, health, roads/street lighting, renewables and student • Refurbishment and fit-out • Highways network management, accommodation operation and maintenance • Mechanical and electrical services • Operate a US portfolio of military • Rail renewals Key highlights housing and student accommodation • Poor performance in UK construction Key highlights concessions business addressed through • Revenue +10% as a result of strong Key highlights management and operational changes performance in UK power and • Strong financial performance including gas sectors • Significant increase in the US order £82 million in disposal gains book, albeit from a low base • Strong underlying profit from • The portfolio remains substantial and continuing operations with improved • Good order book growth in rest of diverse with a Directors’ valuation operating margin world, driven by wins in Hong Kong. of £766 million at December 2013 • Executed in line with strategic • Financial close on eight projects, with objectives the disposal of Balfour another three advancing to preferred Beatty WorkPlace for £155 million bidder stage

Construction Services p30 Support Services p32 Infrastructure Investments p34

65% 13% 6% total revenue2 total revenue2 total revenue2

£7,715m £4,107m £766m Order book Order book Directors’ valuation

£6,573m £1,265m £608m Revenue2 Revenue2 Revenue2

£21m £55m £132m Profit from Profit from Pre-tax result1 operations1 operations1

1 From continuing operations before non-underlying items. 2 From continuing operations including joint ventures and associates.

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contract awards during the course of the year. CHIEF EXECUTIVE’S Our Infrastructure Investments division has had an excellent year. Our strategy of recycling the capital invested in the REPORT portfolio has delivered a very favourable outcome during the year, and full-year In 2013, challenging economic conditions and, underlying profits before tax for the division were £132 million. It is becoming well flagged, operational issues in the UK led to clear that our investment division is core a disappointing financial performance. We have to connecting other areas of the business and we will maximise this in the future. taken firm actions to address all these issues. Last year, at our full-year results in March, I set out clear objectives for the year, aligned to our strategic objectives. In the short term, these were to continue with our focus on cost efficiencies, dispose investment in major infrastructure projects of our mainland European rail businesses in the UK has resulted in fewer major (which are underperforming and non- projects being brought to the market. strategic) and complete the strategic Whilst the UK economy is starting to pick review of our UK facilities management up and will start to have a positive impact business – Balfour Beatty WorkPlace. on parts of the construction market, we We have made significant progress on anticipate current conditions will continue all of these. into 2014. In July, we announced the sale of Read more online about Nick Pollard WorkPlace to GDF Suez Energy Services The market in Australia has seen for £155 million in cash. This sale significant deterioration, with a large represents an important step in our number of capital projects cancelled evolution as we intensify our focus on the creation and management of We are committed to becoming over the last 18 months. Our Australian Professional Services business has seen infrastructure assets. In addition to finding a leading international a corresponding deterioration in both a good new home for the business, its infrastructure company, acclaimed volume and pricing through the year. clients and employees, this transaction has achieved good value and will enable for the quality of service that we In response, we have already taken strong and decisive steps to take cost out of the us to allocate more resources to target deliver to our clients. We create business; enabling a return to profitability, growth in the future. critical assets which support but we see the constrained market As part of our ongoing programme of our clients in providing services conditions as being likely to continue mainland European rail disposals; in to the communities which in 2014. March, we announced the sale of the Spanish business, and in December the they serve. These issues have been partially offset by positive performance elsewhere. With the sale of the Scandinavian business to As I have highlighted over the course exception of Australia, the Professional Strukton Rail B.V. We are currently in of the year, market conditions in the Services business performed well, with discussion with a number of potential countries in which we operate have had a particular strength in US transportation, buyers for the German business and have strong influence on our performance. We Asia and the Middle East, where our focus started preliminary discussions for the have seen challenging markets in the UK on the transportation sector has proved Italian business. In Germany trading and Australia and some emerging markets beneficial with the award of various high has been very poor which resulted in have been tougher. This combined with profile contracts during the year. However, an underlying loss from operations our own operational issues has led to poor order book increases in the US and the of £26 million. performance in those specific markets. Middle East were offset by the impact Read more on p31 In 2013, our leadership team has of Australia and minor movement in the UK business. Our cost efficiency programmes remain responded with decisive actions that have on track and we have made significant reduced the impact of these conditions In the US, we are seeing a quicker progress in this area this year. During and stabilised the business for the future, return to growth than in the UK market. 2013, we centralised much of our whilst still remaining focused on our mid There are more private and complex common expenditure and low value UK to long term growth opportunities. construction projects coming to the buying. We made ongoing savings of At the end of April, we reported that market and our order book is looking £6 million per year in the US by relocating the UK construction business had been healthy for the future. For the first time in many support service staff from Parsons impacted by a £50 million profit shortfall. 2013, the US construction business was Brinckerhoff’s New York headquarters to The UK construction business has larger than the UK. In Asia, our Gammon Lancaster, Pennsylvania and we closed stabilised in the second half as the JV continues to perform well and we are our UK defined benefit pension scheme management team, led by the newly seeing high volumes and a strong order to current members. book, particularly in Hong Kong. appointed Construction Services UK CEO Read more on p16 – Nick Pollard – has focused on improving Support Services has demonstrated operational performance which was the resilience in the current economic primary cause. As a result, we have seen environment and strengthened its position our Regional business strengthen through in the UK highways maintenance and the same period, but the current lack of power and gas markets with several key

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Near term focus processes, the lifecycle and technical It is not just my commitment but that As 2013 demonstrated, our Infrastructure expertise that we have built on years of of the whole team at Balfour Beatty. Investments business was a key lever experience operating across the world, Despite the challenges that we have faced to connecting our operating divisions. together with the strength of our people, in 2013 the energy and drive of business When we work in this way we generate and of course the great relationships we leaders faced with difficult choices and incremental revenue across the Group have with our clients, to set us apart from the dedication of the whole Balfour Beatty and this is something we will absolutely the competition. We will look to innovate family to serving our clients and focus on moving forward. and target continuous improvement to commitments is inspirational. make a difference to our projects. It is As we head into 2014, we are seeing Effective infrastructure is the heart of in these areas that I expect to place strong growth in some markets, for any community and everyone at Balfour significant emphasis over the coming example the Middle East and Asia. Also Beatty plays a part. It is a team that is years. Creating leading local presence, there are some signs that our largest and growing in strength and capability to harnessing the knowledge we have of most mature markets, such as US building serve. I therefore have no doubt that with the assets we create and manage and and parts of the UK, are returning to this team and the actions taken in 2013, combining our skills as investor and growth. It is here that we will focus I can look to the future with confidence. developer are critical in enabling this. our efforts and maximise the benefits available from the cyclical recovery. It is clear the near term will remain challenging and our focus must remain Over the next few years, as the strength on being poised to benefit from a return of the Group continues to grow, we will to growth in our home markets. However, focus on expanding our local presence in we continue to lead the market in creating our mature home markets and also look innovative solutions for complex projects to develop our next generation of home Andrew McNaughton and I am committed to a highly disciplined markets such as Australia, Canada and Chief Executive approach to increasing the value of our the Middle East where, and when, market business and a continued review of the trends support our business model. Read more about the Executive structure and capabilities of the Group leadership team online Read more on p12 as a whole. Our mid to long term growth plans I am equally applying this sense of My longer term goals for the Group, as discipline to our key processes. In 2013, outlined in March 2013, are to leverage we set out the next phase of our road three key strengths; local presence, asset map to Zero Harm. Despite this, as Steve knowledge and our skills as an investor Marshall has noted, five people tragically and developer. lost their lives during the year. No such loss is acceptable and I will remain As I look to the future, we will continue relentless in my drive across the whole to build on these differentiators. We look organisation for the elimination of risk to the effectiveness and reliability of our to personal harm. our strategic Objectives

Read more on p16 Read more on p19

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Strategic objective

we aim to strengthen our business. We have made good progress in four: Canada, GROWTH the Middle East, South Africa and South East Asia. Our Australian business has been hampered by the mining downturn which we have taken prompt measures to address. Although it may take time for activity in the market to return to historic levels, we believe Australia still presents good opportunities for the Group in the medium term. In the other two geographies of India and Brazil, we are reducing our efforts as we believe we will generate better growth returns in other markets in the short to mid term.

Target sectors 1 We continue to target key infrastructure Our strategy is to develop our sectors and are making good progress in sectors where we can leverage global core UK and US businesses knowledge into our local businesses, and to strengthen our presence +4% such as transport, power and water. Our increase in order progress in mining has been hampered in other chosen geographies book in target and sectors in the longer term. In sectors by project delays and cancellations, particularly in Australia where growth 2013, this objective was slowed to has come to an abrupt halt, but we believe the long term drivers remain sound. enable us to focus on addressing leveraging our world-class processes, operational issues in our business sector expertise and innovation on a Complex building is also likely to feature and capitalise on increasing national basis. This is allowing all of heavily in the UK and US in the next few opportunities in the UK and US. our business to access growth sectors years. We will particularly target niche, such as commercial multifamily housing, higher margin areas such as student Why is this important? corporate facilities, mission critical accommodation and defence in the UK As the UK and US markets return to installations and student accommodation. and US and mission critical installations such as data centres in the US. growth and we begin to benefit from the In infrastructure, where we have a actions we have taken to reshape some strong platform in professional services, In both building and infrastructure, of our core businesses in these markets, we have significant headroom to develop PPP and other investment procurement we are well placed to capitalise on the our downstream construction activities, models, remain a key component of opportunities they present. In the longer which continue to grow. our strategy. We will continue to target term, it remains important to strengthen any opportunities where we can our business outside our current core International growth leverage our combined construction in order to expand our growth horizons Outside our core markets, we continue and investment capability. and position the business for long to develop the business. Last year, term success. we identified seven geographies where

What are we doing? Core markets – UK and US In response to current market conditions and some operational issues, our core UK construction business has been a key focus for management this year. Going forward, our position in the UK means we are well placed to take advantage of the impending recovery. Although it will take time to flow through to workload, early signs of activity are emerging in the regional construction and civil engineering business. We are targeting particular opportunities in commercial building, student accommodation, defence and the regional markets, where we draw on multiple parts of our UK business to satisfy client requirements. In the major projects business, significant new projects SUSTAINABLE DESIGN SOLUTION FOR dubai airport have been slow to come to market and we do not expect this trend to improve Our BK Gulf LLC joint venture in Dubai was awarded a £64 (AED378) million in 2014. mechanical and electrical engineering contract to work on a project that will help Dubai International Airport assist millions more passengers to get through the In the US, where the market is airport each year. Our sustainable design solution will mean the new facilities gradually improving, we see significant will be powered by renewable energy via photovoltaic and solar panels. opportunities for our business over the next few years. In complex buildings, Sustainability Environmental Limits where we are a top-tier player, we are balfourbeatty.com/dubaiairport

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500,000 homes powered each year by electricity generated through the Greater Gabbard project

Balfour Beatty We reinforced our Communities received top leading position in the honours from the Professional growing offshore transmission Housing Management market as we reached financial Association, winning six awards close on the £317 million Greater in the Military Service category 6% Gabbard offshore transmission of their annual awards programme of revenue project. To date, we have been recognising the outstanding awarded preferred bidder client service of those who status on two other OFTO support the housing needs projects by Ofgem. of US military personnel. Read more online Read more online

FINANCE & DEVELOP

Infrastructure Investments p34

1,160 We have leveraged our The number of accommodation capabilities in the student facilities for postgraduate students accommodation market to establish a student accommodation portfolio in the UK and US

Our £63 million Holyrood Postgraduate Student Accommodation and Outreach Centre project is our first student accommodation win for our Investments business in the UK. The 50-year concession contract involves the design, build and maintenance of student accommodation facilities for the University of Edinburgh. Read more online

50-year concession contract for the university 14

Image courtesy of Shanghai Tower Construction We have been appointed Development Programme Management Office Co., Ltd Consultant on the Makkah Public Transport Programme for an Transform expected 60 months at a value into a sustainable, of £61 million. This project holds healthy and economically great importance with strong thriving community cultural connotations given its prominent location in the Holy City of Makkah in Saudi Arabia. Read more online

When the Shanghai Tower opens in 2015, it will be the tallest building in China and also one of the most 16% of revenue sustainable buildings in the world. Parsons Brinckerhoff has played a key role in earning Leadership in Energy and Environmental Design (LEED) certification for the skyscraper. Read more online

DESIGN & MANAGE

Professional Services p28 This will be the nation’s first high- speed rail system and will provide connections at up to 350kph. The first phase will connect the 35 million passengers annually when state’s economic centers from system is complete San Francisco to the LA Basin and will be integrated with urban, commuter and intercity rail The California High-Speed systems to create a modern Rail project is one of the largest, most ambitious public statewide rail network. transportation programmes in the US, allowing passengers Frank Vacca, Chief Program Manager, £78 million California High-Speed Rail Authority to travel from Los Angeles extension on the California to San Francisco. Parsons High-Speed Rail programme Brinckerhoff has served as management contract the project’s programme manager since 2006. Read more online 350kph Able to travel at speeds of up to 350kph

Image courtesy of the California High-Speed Rail Authority 15

Strategic objective deliver greater value to clients 80% Client satisfaction1

2 We engage with our clients to the process, experts from the UK moved During 2013 we had some notable gain a better understanding of to Singapore to support the project on the successes in highways maintenance, ground and reduce project risk. power transmission and student housing. their objectives and then use Whilst some clients purchase more than Student accommodation is an example of our experience across all areas one service from us, many only use one at a growing sector, with around US$1 billion of infrastructure development any given time. We have therefore tailored of new projects coming to market in the to be able to deliver on these our offer and provide services alone or in US and a pipeline of around £1 billion of objectives better. In 2013, our combination. For those that are looking new projects anticipated in the UK over for support in more than one area, we the next few years. We are establishing focus in this area has remained. have the ability to provide this and share a significant presence in both markets, knowledge and connect teams to work successfully transferring skills from work Why is this important? alongside our clients seamlessly. on social infrastructure projects and Detailed engagement with our clients military housing. During the course of allows us to better understand their We have expert knowledge in certain 2013 we announced nine contract awards strategic needs. Clients have their own sectors including transport, power and in this market on both sides of the Atlantic. objectives – be it better transport links, water. By understanding the specific reliable and sustainable energy supply, challenges and needs of a defined 1 Where we operated a client service programme high quality education or world class market sector, we are able to create and such as The MAP, our average client satisfaction healthcare. We aim to work in partnership maintain infrastructure that is technically score was 80% which equates to being amongst sound and delivered with innovative the best, however this only covers around 10% of with our clients to ensure their strategic our UK and US operations. The MAP is an ongoing objectives are met through the and sustainable techniques. assessment and scoring tool that provides clients infrastructure we finance, design, with a pro-active feedback mechanism to comment construct and maintain. In turn, on our performance as a contractor/supplier. transferring and sharing our knowledge and expertise across the business allows us to create and maintain infrastructure to a higher quality, at a lower price, faster and safer, to ensure our clients meet their goals. For example, in May 2013, we commenced work to remove a pivotal road/rail crossing in Melbourne and lower the existing rail line below the road, reducing congestion, improving safety and cutting journey times for commuters. The majority of our clients operate on a national basis and typically require support from us in specific areas of the asset lifecycle. For them, we are able to provide local, dedicated teams who can draw on the expertise of all of our business to avoid duplication of effort and mistakes SHARING KNOWLEDGE REDUCES RISK IN Singapore and ensure solutions are fit for purpose and best in class. Our Gammon Construction joint venture was awarded two significant rail contracts in Singapore. Land Transport Authority’s £87 (S$174) million For example, in the later stages of 2013, contract for the design and construction of the Mayflower Station on the we were awarded a contract with SMRT Thomson Line and SMRT Trains’ £61 (S$122) million contract for track Trains in Singapore to change the sleepers system replacement on the North-South Line. from timber to concrete, as part of the renewal and upgrade of the existing Our collaborative approach and the sharing of the knowledge North–South Line. The Asia team worked and technology across our business, particularly with the UK rail team closely with the UK rail team to share on the SMRT Trains project, has reduced the risk our clients face. knowledge and equipment. As part of Read more online balfourbeatty.com/gammonrail

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 16

Strategic objective Improve Operational Performance and Cost Effectiveness

3 Clearly, given the profit issues Other programmes completed in 2013 scheme for the majority of members within the UK construction During 2013, at a one-off cost of in August 2013. The closure of the DB £10 million, we relocated 170 roles pension scheme attracted a one-off business in the first half and in shared service functions (including non-cash cost of £53 million; however economic challenges elsewhere, finance, IT, HR and communications) it will reduce our cash contribution and this became even more from Parsons Brinckerhoff’s New York profit and loss charge by £12 million pa headquarters to Lancaster, Pennsylvania. in the future. important in 2013. Through the This will deliver ongoing savings of Current programmes year, we continued to focus on £6 million per annum through staff In November, we signed a contract with rationalisation and lower lease payments. generating efficiencies across Verizon for a single consolidated global all operations and back office Following an extensive consultation with IT network. This will deliver lower costs support functions to ensure employees, we ceased future accrual and improved connectivity, enhancing in the UK defined benefit (DB) pension knowledge sharing across the business. we operate as efficiently and The service will be rolled out over a period as profitably as possible. of 18 months. Why is operational efficiency important? During the year, we also signed a five-year Our clients’ budgets are under pressure. contract with Fujitsu for the provision Their expectation is that our scale will of a standardised, centralised and allow us to create and share best practice commoditised IT service to our UK across our operating units, have operations. We will complete the rollout consolidated back office functions of this service in 2015. and apply consistent standards to our We continued the rollout of Oracle R12 processes. This will allow us to deliver within our UK operations. Its deployment services reliably, informed by in Construction Services UK has been organisational learning and supported delayed by the restructuring of that by a low cost and efficient overhead. business; however, this work will be undertaken during 2014. Support Services What progress have we made? will follow in 2015. The Shared Service Centre (SSC) We have improved our cost effectiveness In this report last year, we confirmed in the UK with the creation of the SSC. our intention to investigate the benefits of managing our businesses at a country This has enabled us to centralise most level. Having satisfied ourselves that there of our common procurement, HR and are advantages in terms of both client accounting processes and consolidate CREATING service and overhead reduction from our supply chain and leverage our buying this approach, we are now running our power. We have also completed the APPRENTICESHIPS IN businesses under one leadership team in transfer of much of our UK accounting, WESTMINSTER Australia/New Zealand, the Middle East HR administrative and IT services into Our £80 million contract to design and South Africa. These are regions the SSC. and construct a 19 storey building for where Parsons Brinckerhoff and our By the end of 2011, the activity at the SSC Urbanest, a leading supplier of student Support Services and Construction accounted for 50% of our UK transactions accommodation for Westminster businesses work together in closest and about £300 million of indirect spend University in London, was announced proximity and, consequently, the benefits was procured through specialists at the in 2013. We have committed to a to our clients of an integrated approach SSC. By the end of 2013, this is nearer range of employment and training are greatest. However, due to the 90% of our UK transactions and about initiatives including the creation of imperative to focus on maximising £370 million of indirect spend. 40 apprenticeships to ensure the growth opportunities in the short term, project generates tangible benefits we are not looking to move to a country The success of this initiative informed our for the local community. model in the UK and US. thinking on other initiatives including the Parsons Brinckerhoff Lancaster relocation. Sustainability Healthy Communities balfourbeatty.com/urbanest

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Built by Howard S. Wright, Apprenticeships a Balfour Beatty company, the We have committed to the Edith Green Wendell Wyatt Federal creation of apprenticeships Building in Portland, Oregon US which will amount to 7% of the has become a proving ground total workforce for this contract for innovative sustainable technologies. This modernisation resulted in one of the most energy efficient facilities in the US General Services Administration portfolio. Read more online We were awarded the £154 million contract to carry out the full transformation works to the London 2012 Olympic Stadium. The Stadium will host the Rugby World Cup 2015 and be the permanent home of West 65% Ham United Football Club from 2016. The of revenue venue will also become the new national competition Stadium for athletics in the UK as well as hosting elite international athletics events and other sporting, cultural and community events. Read more online

CONSTRUCT & COMMISSION

Construction Services p30

1.6km The Southern Connection 1,500 Viaduct Section includes the project will generate an a 1.6km dual two-lane estimated 1,500 local jobs sea viaduct The £720 million (HK$8.6bn) HKSAR highways contract to construct the Southern Connection Viaduct Section of the Tuen Mun – Chek Lap Kok Link in Hong Kong is the largest solo civil engineering contract ever awarded to Gammon Construction, our joint venture. Read more online 2016 The project will be substantially completed by the end of 2016 18

Our joint venture won a contract with Sydney Water. By sharing our network intelligence capabilities with Australian water companies, we are working collaboratively to better understand the issues facing water networks. Read more online

In 2013, we began to install high voltage electricity cables for National Grid’s London Power Tunnels project, which will create an energy ‘superhighway’ in tunnels deep under the city. Working with 13% the Tunnelling and Underground of revenue Construction Academy, we are helping to address the resource £91 million challenges facing the power industry potential bid opportunity in by offering local unemployed people Australian water renewals training and the opportunity market over the next five years to work in tunnelling. Watch video and more online

MAINTAIN & OPERATE

Support Services p32

Balfour Beatty rose to the 55 tonnes challenge to deliver and of salt spread on roads across sustain a real improvement the county each night as part in the condition of our roads of winter maintenance – one that the people of Herefordshire are calling for.

Geoff Hughes, Herefordshire Council Our £200 million Herefordshire Council UK Public Realm contract covers highways maintenance and improvement works, street lighting and street cleaning, as well as responsibility for public rights of way, parks and open Our maintenance activities spaces. Our dedication to delivering an help the local community effective, efficient, sustainable and day in, day out client focused service for the county is achieved through flexible delivery, innovation, and staff development. Read more online 19

Strategic objective

that the messages are embedded throughout the organisation, which we Continue to Show do through our extensive programme of ethical compliance, and we work with the middle tier of employees to ensure Leadership in Values they too are aware of their responsibilities in this area. These programmes focus on the importance of building a good and Behaviour corporate reputation and on the difference between what is lawful and what is right. In 2013, we have sought to maintain our commitment to development, career progression and talent management across our workforce. In the current economic environment, there has inevitably been the need to cut budgets 4 and costs which has impacted areas, such As an international leader in duty. This is a matter of huge regret to as training. However, we have maintained everyone involved with the Group. our focus in many areas including infrastructure services and as supporting graduates and apprentices part of our focus on securing The way we work – health and safety p38 as they enter the workforce. We have a sustainable, long term future We are acknowledged as leading the recently joined other UK companies and become members of the 5% Club to for the Group, we understand way from an environmental performance perspective and this is providing benefit in increase the number of apprentices the need to provide a legacy terms of work winning, client engagement, and graduates in our workforce. within the communities in which employee engagement and supporting The way we work – people p40 the communities we work within. we serve. To achieve this, we It is essential that we develop lasting, need to improve continuously in There is a growing emergence of collaborative relationships with our supply areas such as safety, business increasingly aggressive enforcement of chain partners. Two thirds of our revenue anticorruption legislation and, with our is reinvested in our supply chain and as ethics, talent management, global reach, it is vital we continue to such our own performance is underpinned environmental performance focus on achieving a high degree of ethical by theirs. In Construction Services UK, and community engagement. rigour in everything we do. Our aim is to 55% of our spend went directly to SME’s In 2013, we continued our focus comply with, if not exceed, the strict legal and 41% went to suppliers within a 50km requirements of the countries where radius of our project sites, supporting local in these areas, to maintain our we operate. communities. We are a signatory of the market position and enhance Our focus is to ensure our business is run UK Government’s Prompt Payment our reputation. ethically, not just to comply with the law. Code and in September, we launched We achieve this, in part, by ensuring our a voluntary finance scheme to enable Why is this important? senior leadership are part of ‘Tone at the our UK supply chain to receive payment Our reputation is crucial to winning new Top’ – a key element of our effective faster than before. business, attracting and retaining the compliance programme, where our The way we work p38 to p43 best people and building effective client leaders lead by example. We also ensure partnerships. To be seen as a true leader in our field, we need to build and protect a reputation for leadership in values and behaviour. In 2013, we launched our Roadmap that charts Health and Safety maturity from one of minimum expectations in 2013 to excellence by 2017. Alongside the Roadmap we introduced our Global Safety Principles, a set of rules that define the way we work. Throughout the year we have focused on a relentless determination to reduce the risk of harm. Despite improvement in the industry standard measurement of safety performance and the Accident Frequency Rate, five employees of sub contractors lost their lives during the year whilst on Our Values 12% We operate in increasingly diverse markets so a common set 4 Reduction of values offers clear business benefits and will help support Core values in greenhouse the challenges of future growth. Our Values are; gas emissions Integrity, Teamwork, Excellence and Respect. Read more online balfourbeatty.com/values

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 20

Principal risks Operating in many different business environments and territories inevitably entails risks and uncertainties that are not necessarily within our control. Although we cannot eliminate such risks and uncertainties completely, we have established risk management and internal control systems and procedures to manage their impact. The Board believes that our risk management and internal control systems will help us to identify such risks and respond in a timely manner. The principal risks that could adversely impact our profitability and ability to achieve our strategic objectives are set out below.

Health AND Safety is paramount to everything we do across our business.

HEALTH AND SAFETY No change to Risk Risk description What impact it might have We work on significant, complex and potentially hazardous Failure to manage these risks could result in harm to, or even projects which require continuous monitoring and death of, employees, subcontractor staff and members of the management of health and safety risks. public, as well as potential criminal prosecutions, debarment and reputational damage. How the risk may manifest itself How it is mitigated Some common themes where health and safety risks have We have detailed health and safety policies and procedures arisen are recognised and communicated, including: to minimise such risks. These are reviewed and monitored by management and external verification bodies. Each division has • Risk of poor risk identification/assessment experienced health and safety professionals who provide advice • Risk of not having processes that promote risk elimination and support and undertake regular reviews. or mitigation • Failure to deliver management leadership/’Tone at the Top’ A Safety Executive committee meets regularly throughout the year • Management of subcontractors to develop a consistent approach to health and safety best practice. • Not briefing people properly before setting them to work In 2013, in response to an unacceptable level of fatalities, serious • Failure to follow procedures injuries and near misses, we initiated work on implementing our • Debarment for safety failures. Global Safety Principles. The way we work p38

Key operational business risks we face as part of our project lifecycle.

ECONOMIC ENVIRONMENT Increased Risk Risk description What impact it might have The continued or residual effects of the global economic Any significant changes in the level or timing of client spending downturn, or other national or market trends or new or investment plans could adversely impact our future order book. developments in infrastructure expenditure or procurement, Such changes could arise from changes in government policy or may cause our clients to postpone, reduce or change existing clients’ failure to secure financing for future projects or for future or future projects, which may impact our strategy, business stages of existing projects. model, revenue or profitability in the short or medium term. Failure of a client, including any government or public sector body, could result in non collection of amounts owed. How the risk may manifest itself How it is mitigated We may fail to anticipate or assess national or market events The Group’s strategy to focus on the more resilient and stable and developments, their potential negative impact, or the infrastructure markets will help mitigate this risk. The effect of opportunities they present. Such events or developments, spending changes in any one market is mitigated by our broad whether or not anticipated or correctly assessed, could lead to: exposure to infrastructure markets across the globe and the continued need for infrastructure spending. We also mitigate the • Cash pressures for clients and suppliers effects of such market conditions by continuing to adapt our business • Increased competition (eg in the UK from other model, overheads and efficiency. EU countries) • Supply chain failure risk The financial solvency and strength of counterparties is always • Reduced revenue or pressure on margins. considered before contracts are signed and is a specific focus in the current economic climate. During the life of a contract such These risks may also be triggered or exacerbated by the need, assessments are updated and reviewed whenever possible. We also actual or perceived, to pursue work in a declining market. seek to ensure that we are not over reliant on any one counterparty.

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BIDDING Increased Risk Risk description What impact it might have Through our different divisions we seek to win profitable Failure to estimate accurately the risks, costs, time to complete, work through a large number of bids. In some cases we bid impact of inflation and contractual terms and how best to manage in joint venture with carefully selected partners, often to help them could diminish profitability of contracts. us manage or spread risks, especially where we want to In the event of disagreement with, failure of, or poor delivery augment our expertise or knowledge of the relevant market. performance by a joint venture partner, we could face financial We also invest in PPP and infrastructure investments, and reputational risks. where success depends on a number of assumptions made, If any of the assumptions behind investment decisions prove at the time of investment, on future revenues and costs. incorrect, the profitability of those investments could be reduced. Our success depends on our ability to identify, price and execute the right volume and quality of bids to maintain a profitable, sustainable order book. This in turn requires that we have a competitive business model and overheads. How the risk may manifest itself How it is mitigated • Unrealistic programme All bids are subject to rigorous estimating and tendering processes • Incorrect pricing within a defined framework. • Overambitious budgets We have defined delegated authority levels for approving all tenders • Bidding at too low a margin and infrastructure investments. All major and significant contracts • Poor partner selection above those authority levels are subject to Group review and approval • Client credit and late payment risks by the Group Tender and Investment Committee (GTIC). • Partner and subcontractor performance and credit risks • Inability to make profit from non-PPP investments and Governance p61 other new work types We conduct reviews following successful and unsuccessful tenders • Failure to ensure our overhead structure remains competitive. to ensure we learn from them and apply those lessons to future tenders. Before entering into a joint venture agreement we have procedures for reviewing the relevant skills, experience, resources and values of joint venture partners to understand how they complement ours. Investment appraisals are performed and reviewed by experienced professionals. We analyse the risks associated with revenues and costs and, where appropriate, establish contractual and other risk mitigations.

PROJECT EXECUTION No change to Risk Risk description What impact it might have We work on complex design, engineering, construction and Failure to manage or deliver against contracted client requirements asset management projects. If we fail to deliver them on time, on time and to an appropriate quality could result in issues such to clients’ requirements, and in accordance with our own cost as contract disputes, rejected claims, design issues, cost overruns or assumptions and reporting, we face the risk of financial loss, failure to achieve client savings – which in turn harm our profitability claims and reputational damage. and reputation. Successful delivery of many of these projects depends on the Execution failure on a high profile project could result in significant successful implementation and maintenance of a range of reputational damage and costs. operational and commercial procedures and controls, backed up by appropriate training, clear accountabilities and oversight, accurate, realistic and timely reporting, and regular audit and review. It also depends on the combined availability and effective management of sub contractors and other service providers. Finally, it relies upon many complex, technical and commercial judgements and estimates regarding cost, value, progress and likely or practicable outcomes. How the risk may manifest itself How it is mitigated • Unrealistic progress assessments Each business area has defined operating procedures to address • Overestimating our ability to recover claims within the the risks inherent in project delivery. In addition, the Group risk timeframe or in the amounts estimated management framework aids identification and quantification • Incomplete visibility and appreciation of scale of of specific risks on projects and the mitigating actions required. commercial judgements Projects are subject to management, commercial function and internal • Inaccurate, incomplete cost and value data or failure to audit review at all levels to monitor progress and to review steps analyse and report correctly, which could arise due to poor put in place to address specific risks identified on those projects. training, lack of supervision, lack of accountability or a We also have public indemnity cover to provide further safeguards. project manager’s or project team member’s fear of We monitor the performance of joint ventures, joint venture partners, reporting bad news sub contractors and suppliers throughout the life of a project. • Inadequate experienced, independent challenge from support functions such as commercial, operations, finance etc.

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PRINCIPAL RISKS CONTINUED

SUPPLY CHAIN RISKS Increased Risk Risk description What impact it might have We are heavily reliant on our supply chain partners for Failure of a subcontractor or supplier would result in the Group having successful operational delivery, which means we are also to find a replacement or undertaking the task itself. This could result exposed to a variety of risks in the supply chain, including in delays and additional costs. financial, technical, quality, safety and ethics. We will be commercially as well as reputationally responsible for performance shortcomings by suppliers and subcontractors, whether in terms of quality, safety, technical or ethical standards. Mistreatment of suppliers, subcontractors and their staff by us, or poor ethical standards in the supply chain, could lead to significant reputational harm for us. How the risk may manifest itself How it is mitigated • Supply chain failure risk, exacerbated during, and We aim to develop long term relationships with key subcontractors, when emerging from, tough economic conditions working closely with them to understand their operations. We develop • A subcontractor’s failure to perform to an appropriate contingency plans to address subcontractor failure, and also obtain standard and quality, which could cause project delays, project retentions, bonds and/or letters of credit from subcontractors, reducing our ability to meet contractual commitments where appropriate to mitigate the impact of any insolvency. and harming our reputation We aim to work as much as possible with preferred suppliers and • Supply chain operating to lower standards subcontractors who undergo rigorous, risk-based prequalification (safety, ethics, quality, timber, child labour, forced labour) processes and share our values. We aim to avoid becoming over • Failure to deliver targeted UK procurement savings reliant on any one supplier or subcontractor. • Ethical treatment of the supply chain.

Important risks we face, common to many other businesses.

PEOPLE Increased Risk Risk description What impact it might have Our inability to recruit and retain the best management Failure to recruit and retain appropriately skilled people could harm and employees who have the appropriate competencies our ability to win or perform specific contracts and grow our business. and also share our values and behaviours may hamper our growth prospects. How the risk may manifest itself How it is mitigated • Failure to attract and retain skilled staff We measure all potential recruits for key roles in the organisation • Distraction and impact on morale of change programmes against a competency and leadership framework. Divisions undertake • Inability to successfully promote the right people through organisation and people reviews to review the roles, competencies, succession planning performance and potential of personnel. We have a well-developed • Commercial and project management quality/performance succession planning process to identify and develop high potential • New staff unfamiliar with culture and procedures personnel to fill key roles. These plans are reviewed regularly and • Lack of a diverse workforce discussed at all levels within the organisation and by the Board. • Bullying and harassment We have appropriate remuneration and incentive packages to help • Loss of former staff with traditional bidding and us attract and retain key employees. execution skills The way we work p40 • Staff dissatisfaction and loss of loyalty/engagement caused by termination of defined benefit pension plan.

BUSINESS CONDUCT/COMPLIANCE Increased Risk Risk description What impact it might have We operate in various markets that may present business Failure by the Group, our employees and third parties acting on our conduct-related risks involving, for example, fraud, bribery or behalf or in partnership with us to observe the highest standards of corruption, whether by our own staff or via third parties such integrity and conduct could result in civil and/or criminal penalties, as partners or subcontractors. Those risks are higher in some debarment and reputational damage. countries and markets than others but cannot be ignored The way we work p39 or underestimated even in low risk countries. How the risk may manifest itself How it is mitigated • Corruption Throughout the Group we take a rigorous approach to assessing • Bribery and addressing corruption risks. We have a variety of programmes • Fraud/false claims to promote compliance with our Code of Conduct published online • Fair competition and in areas such as competition and false claims fraud. Each • Human rights abuses, such as child and other labour business area has a compliance officer responsible for the application standards generally, illegal workers and human trafficking and monitoring of these programmes. • Unethical treatment of and by the supply chain The risk of business conduct/compliance breaches by third parties • Other emerging ethical risks with whom we work is harder to control, but we have a range of risk • Risk of ethics and values being compromised when assessment, due diligence and procurement controls that are designed times are tough, not just in high risk markets. to identify and minimise such risks. We work with very few agents, all of whom undergo a rigorous due diligence and approval process.

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LEGAL AND REGULATORY No change to Risk Risk description What impact it might have We operate in diverse territories and our businesses are A breach of local laws and regulations could lead to legal proceedings, subject to a variety of complex, demanding and evolving investigations or disputes resulting in business disruption ranging from legal, tax and regulatory requirements. additional project costs to potential debarment and reputational damage. Increasingly, businesses are the target of cyber crime, which can result in loss of confidential, personal or commercial data, disruption to operations and associated costs. Sometimes we may be the target of state-sponsored cyber activities because of who our clients are, rather than because our business is a particular target. How the risk may manifest itself How it is mitigated • Data protection and privacy We monitor and respond to legal and regulatory developments in • Information security lapse the territories where we operate. We consider the local legal and • Cyber crime regulatory framework as part of any Group decision to conduct • Government/regulatory enquiry and enforcement actions business in a new country. • Local procurement laws We have data protection and information security programmes across • Debarment or blacklisting. the Group, and cyber crime and other information security risks are assessed on a continual basis.

EXPANSION INTO NEW TERRITORIES AND MARKETS AND BY ACQUISITION Reduced in Risk Risk description What impact it might have In pursuit of our strategic objectives, we may seek to enter Failure to identify, understand and evaluate the risks of conducting new territories, markets or sectors and continue to make business in a new territory, market or sector could lead to significant acquisitions. Although this results from a careful and financial loss and reputational damage. deliberate balancing of opportunity and risk, it has the Failure to recognise the expected benefits from acquisitions and to potential to expose the Group to risks that it may not have integrate acquired businesses successfully into the Group’s processes encountered before or does not fully understand. could result in an adverse impact on our strategic objectives, future prospects, financial condition and profitability. How the risk may manifest itself How it is mitigated New geographies New geographies • Political, security, safety and ethical risks, as well as the As part of the decision making process before entering a new territory, risk that economic, market and other risks mentioned we undertake a detailed country and sector risk assessment. This elsewhere and the means of mitigating them are less will consider and assess the prevailing economic, political, regulatory, well understood ethical, health, safety and sustainability conditions to ensure that we can operate there in line with our own values and standards. New sectors and work-types • Higher risk/higher return design/build projects Acquisitions and partnerships We undertake detailed due diligence on all potential acquisitions and Acquisitions and partnerships partnerships (such as joint ventures and consortia) to ensure that all • Integration of acquisitions and performance to business plan aspects of their business align with ours. In many cases, we have • Partner performance, creditworthiness and ethics worked with these businesses before. In addition, we prepare Inherited liabilities valuation models on all potential acquisitions, drawing on both internal • Problem liabilities and external resources. Due diligence includes an assessment of • Unethical past practice our ability to integrate the acquired businesses successfully into • Unaccounted for liabilities eg tax. the Group. When a business is acquired, we actively work with it to ensure the business is successfully assimilated into the Group and its internal control framework.

SUSTAINABILITY Increased Risk Risk description What impact it might have Through our activities we can impact either positively Failure to address these risks and to execute projects sustainably or adversely the world in which we operate and the could result in significant potential liabilities, reputational damage communities with which we come into contact. and inability to win future work. How the risk may manifest itself How it is mitigated • Environmental incident Our sustainability strategy covers our operations until 2020 in terms • Inaccurate greenhouse gas data may mean we are of profitable markets, healthy communities and environmental unaware of our actual impact limits. Sustainability issues such as climate change adaptation are • Inaccurate carbon reduction commitment data and other considered in risk management activities at divisional as well as data in sustainability reporting may leave us exposed to project level. unacceptable damage, fines etc The way we work p41 to p42 • Unethical/unsustainable sourcing (eg timber, forced labour, child labour) • Insufficient management support and monitoring to achieve our agreed KPIs in this area.

We also face significant risks and uncertainties that are common to many companies – including financial and treasury risks, the management of pension liabilities, information security risks, business continuity and crisis management and hazard risks. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 24

Non-underlying items Non-underlying items from continuing Chief Financial operations of £155 million (2012: £130 million) before tax were charged to the income statement. This comprised Officer’s Review amortisation of acquired intangible assets of £30 million (2012: £39 million) and other items of £125 million (2012: £91 Whilst we have made good progress on million). The amortisation charge declined restructuring and focusing our business, in the year as some intangible assets our overall financial performance for the became fully written down. Significant items included a £52 million year was disappointing. non-cash curtailment charge (and associated costs) in connection with closing the defined benefit section of the Balfour Beatty Pension Fund to future accrual for the majority of members and £52 million (2012: £64 million) of restructuring and reorganisation costs. These included £26 million (2012: £49 million) of costs in the UK in relation to continued restructuring of Construction Services UK, Support Services and other UK entities. Within Professional Services, £20 million (2012: £2 million) of costs were incurred in Australia to significantly Underlying profit from operations restructure the cost base as a result of decreased to £203 million (2012: the market downturn. There was also £284 million). Support Services and £7 million (2012: £4 million) of further Infrastructure Investments delivered costs in the UK shared service centre strong operating results, including the as it expanded from its initial scope of benefit of £82 million (2012: £52 million) finance and payroll into HR and IT shared of gains from PPP disposals after services. £10 million (2012: £2 million) recycling £21 million (2012: £48 million) of costs were incurred in the US for of gains from other comprehensive the creation of a shared service centre income to the income statement. in Lancaster, Pennsylvania. However, overall profits reduced as a Taxation result of a very significant drop in mining The underlying tax charge for continuing related capital expenditure in Australia operations for the year of £50 million Duncan Magrath impacting our Professional Services (2012: £61 million), excluding the Group’s Chief Financial Officer business, leading to reduced volumes share of results of joint ventures and and pricing. In addition, the combination associates, equates to an effective tax Revenue from continuing of a difficult external environment and rate of 43.1% (2012: 33.0%). The increase an internal reorganisation in our UK operations including joint ventures from the prior year is due to the impact construction business also contributed and associates increased by of some unrelieved losses and changes to the fall in profits. 2% in the year to £10,118 million in tax legislation. This includes a charge (2012: £9,966 million). Revenue Net finance costs of £16 million increased of £6 million as a result of writing down by £9 million on the prior year (2012: our deferred tax balances following the was broadly flat across most £7 million) due to increased finance reduction in the UK corporation tax rate divisions with 10% growth charges resulting from the US private to 20%. In addition there was a higher in Support Services. placement issued in March 2013. The proportion of profits in higher tax application of the revised IAS 19 reporting territories than in 2012, offset by the In Construction Services, a 12% revenue standard increased non-cash interest benefit of a greater amount of profit improvement in the US and 16% growth costs compared to the previous standard from investment disposals. Adjusting in the rest of the world was partly by £21 million in 2013, and the prior year to include joint ventures and associates, offset by a 12% reduction in the UK. restatement increased the 2012 reported and comparing this to pre-tax profit for In Professional Services, reductions in figure by £10 million, of which £1 million the continuing Group and joint ventures Australia were mitigated by improvements relates to discontinued operations. and associates, the effective tax rate in the US. Excluding the impact of was 30.1% (2012: 25.5%). currency, revenue from continuing Underlying pre-tax profit from continuing operations for the Group including joint operations decreased to £187 million In 2014 we would expect the ventures and associates increased by 1%. (2012: £277 million). underlying effective tax rate to fall to approximately 40%. Our share of underlying post-tax profits Detailed information on the financial from continuing joint ventures and and operating performance of each Discontinued operations associates reduced, as anticipated, to of our segments is included in the There was an underlying post-tax loss £71 million from £92 million in 2012, Performance Review. from discontinued operations of £15 principally due to the favourable resolution Read more on page 28 to 35 million (2012: profit of £15 million) along of bad debts and claims in the Middle East with non-underlying post-tax costs of during 2012. £37 million (2012: £101 million).

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2013 2012 Provisions Year ended 31 December £m £m The Group’s provisions comprise contract, Underlying profit before tax* 116 185 employee and other provisions. Tax at UK statutory rate of 23.25% (2012: 24.5%) 27 45 Losses not available for offset 24 5 Contract provisions of £102 million Higher tax rates on non-UK earnings 14 14 (2012: £125 million) include construction insurance liabilities, principally in the Non-deductible items 5 7 Group’s captive insurance companies, Adjustments in respect of prior years (15) (8) and defect and warranty provisions UK corporation tax rate change 6 3 on contracts, primarily construction Other tax adjustments (11) (5) contracts, that have reached practical Effective tax charge 50 61 completion. Additional provisions were Effective tax rate 43.1% 33.0% £67 million (2012: £74 million, including significant provisions in respect of two * Excluding the results of joint ventures and associates. major contracts). Provisions reversed unused were £32 million (2012: £49 million) and provisions utilised £48 million In December we completed the sale of Dividends (2012: £38 million). the UK facilities management business, The Board continues to recognise the Employee provisions of £42 million Balfour Beatty WorkPlace, for a net cash importance to its shareholders of a good (2012: £57 million) are principally liabilities consideration of £155 million. After dividend and given the strong management relating to employers’ liability insurance transaction costs the disposal resulted actions taken, the strategic positioning of retained in the Group’s captive insurance in a non-underlying gain of £80 million the Group, and its strong balance sheet, it companies and provisions for employee before writing off goodwill, or £16 million has recommended a final dividend of 8.5p termination liabilities arising from the after writing off goodwill. The business in respect of 2013. This is in line with Group’s restructuring programmes. contributed £19 million (2012: £22 million) 2012’s final dividend and results in Additional provisions were £23 million to underlying profit from operations, up to an unchanged full-year dividend of 14.1p. (2012: £43 million, including significant the date of disposal. Goodwill and intangible assets provisions in respect of restructuring). There was a very poor performance The goodwill on the Group’s balance Provisions reversed unused were in Mainland European rail, principally due sheet at 31 December 2013 decreased £14 million (2012: £14 million) and to underperformance on three contracts by £112 million to £1,048 million provisions utilised £17 million in Germany, resulting in an underlying (2012: £1,160 million). £64 million of the (2012: £17 million). loss from operations of £26 million (2012: reduction was due to the disposal of Other provisions of £49 million (2012: profit of £2 million). Non-underlying costs Balfour Beatty WorkPlace. £38 million £46 million) principally comprise: motor of £51 million included £38 million for of the reduction resulted from reviewing and other insurance liabilities in the writing down the goodwill in the German the likely sales proceeds achievable Group’s captive insurance companies; rail business to £nil, a loss on disposal on the German rail business, and as a legal claims and costs; property-related of the Spanish business of £4 million, consequence the goodwill was written provisions, mainly onerous lease rail restructuring costs of £6 million and down to £nil in the first half. Other commitments, some of which arise from a £2 million regulatory fine in Germany. intangible assets, after amortisation the Group’s restructuring programmes; charges of £33 million (2012: £43 million), Earnings per share and environmental provisions. reduced to £204 million (2012: £212 million). Underlying earnings per share for Pensions – balance sheet movement continuing operations were 20.0 pence Impairment reviews have been carried The Group’s balance sheet includes (2012: 31.7 pence), which along with out, and none of the carrying values, other aggregate deficits of £434 million an underlying loss per share from than as noted above, have been impaired. (2012: £333 million) for the Group’s discontinued operations of 2.2 pence There is however limited headroom in pension schemes. (2012: earnings per share of 2.1 pence) our Italian rail business and in Blackpool gave an underlying earnings per share Airport such that a change in assumptions The Group recorded net actuarial losses for total operations of 17.8 pence could result in an impairment. Details of for 2013 on those schemes totalling (2012: 33.8 pence). the calculations and assumptions are £117 million (2012: £111 million). There shown in Note 15. were £73 million (2012: £194 million) of actuarial losses recorded on the present value of the obligations, largely resulting from the effects of lower discount rates and higher inflation assumptions mitigated by an actuarial gain arising following the Change Results for the year from continuing operations 2013 2012 (%) reassessment of the difference between Revenue including joint ventures RPI and CPI measures. Actuarial losses and associates £10,118m £9,966m 2% of £44 million (2012: gain of £83 million) Group revenue £8,745m £8,656m 1% were recorded against the fair value of Profit from continuing operations plan assets resulting from lower than – underlying £203m £284m (29)% expected returns. Movements in the pension deficit are illustrated on page 27. – reported £48m £154m (69)% Pre-tax profit from continuing operations A formal triennial funding valuation of – underlying £187m £277m (32)% the Balfour Beatty Pension Fund (BBPF) – reported £32m £147m (78)% was carried out as at 31 March 2013 Earnings per share from continuing and showed a funding position of 88%. operations A funding plan was agreed to eliminate – underlying 20.0p 31.7p (37)% the deficit over eight years, which – basic 2.5p 17.9p (86)% provides for a reduced level of deficit

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Chief Financial Officer’s Review CONTINUED payments of £50 million per annum an increase in the deficit) and costs reduction in net liquid funds during 2013, (adjusted by CPI movements) from April totalling £54 million, recognised as a we have also seen a reduction in the 2013 for the first three years, increasing non-underlying item, of which £2 million levels of negative working capital. by £5 million per annum to £65 million per related to discontinued operations. This However, despite the disposals in the annum by April 2018 through to May 2020. reduces the future cash payments over year, the Directors’ valuation of our PPP Under this plan the Group is making the life of the scheme by approximately investments portfolio has increased to regular monthly payments, which increase £250 million, and reduces the pension £766 million using constant discount rates each April by the growth in CPI up to a service charge (net of incremental defined (2012: £734 million). Overall we have cap of 5%, plus double any increase in the contribution payments) by approximately maintained good balance sheet strength. Company’s dividend in excess of capped £15 million per annum. Cash flow performance CPI. In the event of the Company making The increase in the aggregate deficit Cash used in operations of £162 million any special dividend or capital payment to £434 million at the end of 2013 will (2012: £219 million) was impacted by a to shareholders, an additional contribution increase non-cash pension interest costs working capital outflow of £117 million is payable for one year only, equal to 75% in the income statement by £6 million (2012: £310 million) and pension of the percentage uplift on the normal to £15 million in 2014. deficit payments of £59 million dividend payment represented by the (2012: £61 million). one-off payment to shareholders. Balance sheet and capital structure Average net borrowings in the second In August the majority of members of the We look to achieve a balance between half of the year were £433 million, BBPF ceased to accrue future defined the negative working capital, liquid funds although with the sale of Balfour Beatty benefits and became deferred members and facilities and the PPP investments WorkPlace in December, and a strong resulting in a curtailment charge (and portfolio. Whilst we have seen a cash performance at the end of the year, the Group’s net debt at 31 December 2013 was £66 million (2012: net cash of £35 million), before taking into account the consolidation of £354 million (2012: £368 million) of non-recourse net borrowings held in wholly owned PPP project companies. Working capital Working capital comprises receivables and payables from construction contract customers and other third parties. Where receivables exceed payables, this is termed positive working capital and where payables exceed receivables, this is referred to as negative working capital. Including the impact of exchange, negative working capital decreased from £665 million at the end of 2012 to £550 million at the end of 2013. Of this decrease of £115 million, the biggest component was £75 million in Construction Services. This was largely due to changes in the mix of business, away from larger more complex projects, which have the potential for more favourable terms, to smaller projects. Total working capital as a percentage of annualised revenue (WCPR) at the end of the year was (6.3)% (2012: (7.7)%). The most significant component of negative working capital relates to Construction Services, which ended the year with WCPR of (10.5)% (2012: (11.6)%).

Read more on the individual components of working capital on p97 In 2014, we would expect further SUPPORTING National Road Safety Week reductions in negative working capital WITH SAFETY CHARITY BRAKE in UK construction as a result of the continued change in mix from major We held nine events throughout the UK for National Road Safety Week, projects to regional work, and the greater at local schools, colleges, supermarkets and service stations. proportion of smaller contracts. As the We also used Twitter to tweet facts on road safety and to increase market recovery takes hold in the US awareness of the events taking place. It is our 4th year participating we expect negative working capital in in National Road Safety Week run by the road safety charity Brake. our US construction business to increase. We expect working capital in Professional Follow the news on Twitter @BBroadsafety Services to be positive (ie net receivable), but broadly stable with 2013, and in

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Support Services, we may see a Maintaining strength modest increase in the level of positive £800m working capital. £600m Banking facilities £400m The Group’s principal committed bank £200m facilities total £950 million and extend £0m through to 2016. The purpose of these -£200m facilities, and other small facilities, is to -£400m provide liquidity from a group of core -£600m relationship banks to support Balfour -£800m Beatty in its current and future activities. Over time, as the Group’s business has -£1,000m evolved, we have explored ways of -£1,200m diversifying our sources of funds away -£1,400m Dec Jun Dec Jun Dec Jun Dec Jun Dec from the pure bank market. 2009 2010 2010 2011 2011 2012 2012 2013 2013 As part of that process, and taking Working capital1* DV of investments2* Net cash/(debt)3* Net aggregate4* advantage of historically low interest ¹ June 2013 and earlier figures restated to exclude provisions greater than 1 year. rates, in March 2013 we issued US$350 2 Directors’ valuation of PPP concessions. million notes by way of a US private 3 Excluding net debt of PPP subsidiaries (non-recourse). placement with an average coupon of 4 Aggregate of Directors’ valuation of PPP concessions, net cash/(debt) and working capital. * Dec 2012 and earlier figures include 2013 discontinued operations. 4.94% per annum over 9.3 years. The incremental cost of this funding on an annual basis is approximately £9 million. Furthermore, in November we took Pensions – balance sheet movement advantage of favourable bond market Cumulative contributions for deficit funding of £314m since December 2009 conditions and issued approximately £586m £253 million of unsecured convertible £166m bonds due 2018 at a coupon of 1.875% per annum. Proceeds from the bond issue £51m £441m £434m have been used to repay short term £120m £73m £15m £94m £420m £30m borrowings under our principal committed 1 £333m £44m £60m £374m bank facilities and for general corporate £340m £321m £275m £79m purposes. The annual incremental cost £75m £82m of the bonds is £3 million from a cash £254m perspective, or £8 million in income £200m statement terms. At the end of 2013 we had no drawings against our £950 million Dec Dec Dec Dec Service Company Actuarial Actuarial Closure to Other Dec Available- Dec of committed facilities. 2009 2010 2011 2012 cost* contributions loss loss future movements 2013* for-sale 2013 assets liabilities accrual* mutual (net of funds funds)* Foreign currency risk The Group is exposed to foreign currency 2.15% 2.05% 1.9% 1.5% Real Discount Rate 1.05% Since Dec 2009 deficit funding of £314m offset by c.£155m increase from 1.10% reduction in real discount rate and £51m impact risk primarily in the US, Asia-Pacific, from closing the scheme to future accrual and the Middle East. Based on the geographical split of the Group a one cent Pension deficits, net of tax Deferred tax assets movement in the US$:£ exchange rate ¹ Restated for IAS 19 revised. * From continuing operations. would impact profit from operations by approximately £0.8 million. The average exchange rate for 2013 was $1.57: £1. So far in 2014 the average rate has been $1.66, and consequently if this rate persists for the remainder of 2014, Financial Reporting Council in October Based on the above, and having made the impact of foreign exchange would 2009. In reviewing the future prospects appropriate enquiries and reviewed be to reduce profit from operations of the Group, the following factors medium term cash forecasts, the Directors by approximately £7 million. are relevant: consider it reasonable to assume that the Group and the Company have adequate Financial risk factors • the Group has a strong order backlog resources to continue for the foreseeable and going concern • there continues to be underlying future and, for this reason, have continued The key financial risk factors for the Group demand in infrastructure markets in the to adopt the going concern basis in remain largely unchanged. Some of our countries in which the Group operates preparing the financial statements. markets are showing signs of starting to recover. This can lead to increased risk of • the Group has an increasingly To appreciate the prospects for the Group subcontractor failures due to their cash diversified business model that gives as a whole, the complete Annual Report requirements for increased working resilience to the business and Accounts 2013 needs to be read. capital, and also potential inflationary • excluding the non-recourse net pressures in some areas. borrowings of PPP subsidiaries, the The Directors have acknowledged the Group has committed bank facilities guidance ‘Going Concern and Liquidity of £950 million for at least the next Risk: Guidance for Directors of UK two years, which were undrawn at Companies 2009’ published by the 31 December 2013.

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Performance review

Emergency Management Agency (FEMA) contract for disaster inspections, which Professional is contracted through to January 2019. This is the fourth consecutive multi-year contract awarded to the business dating Services back to 1995. Performance of our US power business was lower relative to 2012 due to lower than planned volumes as a number of projects were delayed into 2014. There was good progress on the joint venture EPC contract we won in January 2013 to design and build the Garrison Energy Center, a 309MW combined cycle gas-fired power plant in Delaware. We have completed the integration of Subsurface Group, which we acquired at the end of 2012, although decline in underlying profit from its performance was somewhat below HIGHLIGHTS operations for the division to £54 million expectations in a subdued market. • Order book increases in the US and (2012: £98 million). Our architectural and buildings business Middle East offset by the impact The 2012 order book was restated during performed below our expectations of Australia and minor movement following the settlement of a long running in the UK business the year, following the reallocation of work packages within our internal joint venture legal dispute for US$8 million. • Profitability impacted by significantly with the Support Services division. In Canada, our largest sector – structural lower volumes in Australia work for buildings – has remained flat. Operational performance • Ongoing strength in core US However, we have seen some success in transportation and market Americas our strategic objective of expanding into development in key markets In the US, where approximately 75% the transportation sector. We have made including Middle East and Canada of activity is in the transportation sector, good progress on transit programmes in expected in 2014. funding of projects by both the federal and the City of Toronto and for the Regional state departments of transportation is Municipality of Waterloo. In addition, crucial to our business. The authorisation we are pursuing several other major % of total revenue of the Transportation Bill in July 2012 for opportunities in the province of Ontario. a period of two years (effective from We have also been aiming to grow in the September 2012) helped the transportation power market, but as in the US, we saw business deliver a good performance in a delay in the award of new projects in 2013. In addition to good performance the power market in 2013; however, on major design-build projects, there was we continue to see future opportunities 16% also an increase in traditional design work. in areas such as storage caverns and total revenue Furthermore, the short term US Federal injection well projects related to new Government shutdown in Autumn 2013 work in oil sands. does not appear to have had a lasting impact on existing work or the pipeline of opportunities. As a result, we saw a good Read more on p2 performance in US transportation with Good performance in revenue up 7% year-on-year, whilst the US transportation order book remained at 2012 levels. Financial performance New awards and extensions on existing with revenue up 7% The Professional Services order book projects – including the two-year contract year-on-year. ended the year at £1.5 billion, in line with extension for programme management the previous year. The order book services on the California High-Speed Rail increased in the Americas and the Middle project – remained at a healthy level. East but saw a small reduction in the UK In 2012 we launched a cost efficiency and a more notable decline in Australia, We are currently at various stages on programme, when we announced the resulting from the significant market numerous US transportation design-build transfer of many of our support functions deterioration experienced throughout project opportunities. During the year from New York City to Lancaster, 2013. Revenue remained stable at £1.7 we created a core team of senior Pennsylvania. The shared service centre billion (2012: £1.7 billion), with increases transportation executives to focus on the commenced operations in March 2013 in the Americas and the Middle East pursuit, management and performance and is now in full operation and performing offsetting lower volumes in Australia. We of major design-build projects. well. Building on that success, a number indicated that profitability would be lower Other ongoing major projects – the Dallas of other support functions, such as billing in Australia in 2013 due to 2012 benefiting Horseshoe project; the Illiana Expressway and certain human resource operations, from good final settlements on some which runs between Illinois and Indiana; were also moved to the shared service profitable alliance and at-risk contracts; the Midtown Tunnel project in Norfolk, centre, from elsewhere in the US. however this was compounded by the Virginia; the Westside Subway Extension We continue to progress the settlement significantly deteriorating trading in Los Angeles; and the Second Avenue of the previously highlighted longstanding conditions. Despite taking swift cost Subway in New York City – are all contract dispute. A negotiated settlement reduction measures in Australia and progressing well. now seems unlikely, but the arbitration operating at or above expected levels process is well advanced and we expect in other regions, this led to a substantial During 2013, our Federal business was successful on the re-bid of the Federal it to achieve a positive outcome in 2014.

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Europe, Middle East Our operations in Asia, notably Singapore and Northern Africa and Greater China, have continued to The UK remains an extremely competitive increase their workload and perform well. market with margins remaining under In Singapore, we secured £21 million $87m pressure despite volumes improving in the (S$44 million) in contracts to support the Contract to provide highways and rail sectors. Our operations Land Transport Authority for the Eastern consulting services for in highways and rail have been successful Regional Line Depot and Stations. Qatar Expressway in securing improved levels of workload Development of our structural capabilities Programme and have improved billability levels. in China is expected to provide avenues We are currently delivering aspects of the for additional growth in that market. preliminary design of the railway systems As in 2012, activities in South Africa packages for the UK’s High Speed continued to show positive results during project as well as all three packages 2013. Our programme management role for Transport for London’s structures at the Medupi Power Station in South and tunnels portfolio. Africa continues to progress as we also The UK power business remains look to pursue further opportunities in challenged for domestic workload as the region. new projects continue to be delayed. volume and pricing risks remain, we Expanding export services to other Looking forward expect the business to improve on its geographies has been a key focus for We expect to see ongoing strength in 2013 performance and deliver a broadly this operation in order to supplement our core US transportation market, new breakeven result in 2014. the low level of domestic opportunities. opportunities in a number of our other Overall therefore, excluding any benefit key markets including the Middle East, We had excellent growth in the order of the longstanding contract dispute, UK and Canada, and increasing power book and revenue from the Middle East, we expect to make progress in 2014 opportunities in the US and South Africa. particularly in Qatar and Saudi Arabia. In across the business, with margins June we won an $87 million contract with In Australia we have worked diligently to improving progressively as the losses Ashghal to provide consulting services right size the business in line with current in Australia are eliminated. for the Qatar Expressway Programme, and projected market conditions. Whilst supplementing the significant programme we are already working on for the Local Roads and Drainage and Qatar Rail projects. In July we were awarded the role of Programme Management Office Consultant on the prestigious Makkah Public Transport Programme in Saudi Arabia by the Development Commission of Makkah and Mashaaer. Asia, Australia-Pacific and Southern Africa Our business in Australia has been significantly impacted by the sudden cancellation of capital projects across the resources sector, which has also had a subsequent impact on public revenues and spending plans of Australian states and municipalities. We have taken swift action in response to this by significantly restructuring the business, including appropriate reduction of the Australian workforce. However despite this, cost reductions inevitably lagged revenue declines. Whilst the run rate at the end of the year was broadly break even, the business was loss making for 2013 as a whole and £40 million below the level achieved in 2012. We continue to perform work on the Roy Hill iron ore mining project for which we were appointed programme manager in March 2013. The project is expected to secure the WORLD’S FIRST INTERCONTINENTAL TUNNEL OPENS remaining elements of financing during 2014. The transportation sector has also A rail tunnel under the Bosphorus Strait in Istanbul opened in 2013, the experienced delays in new awards due culmination of more than two decades of planning and design work by Parsons to ongoing funding uncertainty although Brinckerhoff – a 150 year dream to link Asia and Europe via an underwater there are some signs that this may crossing. Known as the Marmaray Project, it involved an upgrade of a 47 mile improve in 2014. Despite this market commuter rail line from Gebze on the Asian side of the Bosphorus to Halkali on turmoil we were successful in securing the European side. The tunnel can accommodate 75,000 passengers per hour or a key rail contract in Melbourne with an estimated 1.5 million people daily, reducing traffic congestion and travel time. Victoria’s Road Authority. Read more online balfourbeatty.com/bosphorus

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Performance review

business and closed regional delivery units with weak future prospects. Construction The management team reviewed all operational contracts, and have subsequently taken steps to improve Services key disciplines such as tendering, estimating and commercial governance. The actions we have put in place to strengthen the leadership and performance of the UK construction business are taking effect, and contributed to a stronger second half performance. Whilst we have seen a better than anticipated turnaround in the regional business, there was weaker financial performance on selected major projects in the building sector. In our mechanical and electrical engineering Underlying profit from continuing business, where we predominantly act as HIGHLIGHTS operations reduced to £21 million from a subcontractor, financial performance in • Poor performance in UK £119 million in 2012, with the decline the final quarter was adversely impacted construction business addressed mostly due to the performance of the UK by increasingly difficult market conditions. through management and business. Whilst there was an expectation The impact of these further deteriorations operational changes of reduced profitability at the start of resulted in an overall £60 million reduction the year, in light of a declining market, in profitability versus expectations at the • Significant increase in US order start of the year. book, albeit from a low base we announced a shortfall of approximately £50 million in April, resulting from further The UK order book has remained stable, • Good order book growth in rest of deterioration in the external environment albeit there continues to be a shift in the world, driven by wins in Hong Kong. combined with the impact of an ongoing mix of work from the major projects internal reorganisation. Whilst the UK business to regional construction due business broadly performed in line with to the impact of the strengthening of the % of total revenue these reduced expectations, a further UK residential market and fewer major deterioration at the end of the year projects being brought to the market. We resulted in an actual profit shortfall won a number of contracts in the student of £60 million. accommodation sector including the Operational performance University of Aberystwyth, University of Birmingham and an £80 million project for 65% UK Urbanest in central London. In the London total revenue The UK construction market has been a commercial sector we were successful challenging environment in which to win in securing some substantial awards, and execute work, allowing clients to including the £110 million Providence impose increasingly stringent conditions Tower and a £121 million hotel contract for onto contractors, and as a result, placing Grove Developments. Whilst there were Read more on p3 subcontractors under significant financial fewer major infrastructure projects up pressure. In addition, the business for award, important wins included the underwent a major reorganisation during £321 million design and construction joint Financial performance 2012 and 2013. In January 2013, the venture contract to upgrade sections of The Construction Services order book operations were streamlined into three the M25 London orbital motorway for the from continuing operations improved in the business units consisting of: Highways Agency. We also announced year to £7.7 billion, up 5% from a year ago. • Major projects: focused on complex the £154 million contract to carry out Following a year of very strong order intake projects in key market sectors the full transformation works to the in the US, our US order book increased by such as energy, transportation London 2012 Olympic Stadium, which 10% despite significant revenue growth. and heavy infrastructure incorporates enhancements to the stadium It is now over 20% larger than our UK roof contract we were awarded in 2013. order book, which itself decreased by • Regional: civil engineering and building, 3% in 2013 with growth in the regional private and public, including work in The performance of our UK Rail business business not completely offsetting partnerships and frameworks to provide was impacted by operational issues on a reductions in major projects and customers with locally delivered, small number of projects. However, we mechanical & engineering services. flexible and fully integrated civil and continue to believe that the UK rail sector We also saw strong growth in the rest building services will generate major programmes which of the world order book which increased we are well placed to address with our • Mechanical and electrical engineering: by 10%, driven by wins in Hong Kong. range of capabilities. covering all market sectors. Revenue from continuing operations US Following the identification of the profits increased by 1% during the year to In the US building market, which accounts shortfall highlighted above we re-focused £6,573 million. US revenues were up for 80% of our business, federal and state attention on operational improvements 12% for the year, driven by a 20% spending remain at low levels, whilst and tighter governance. At the end of April increase in the second half versus the private investment from large corporates we made changes to the leadership of the prior year. In addition, revenue in the rest is gradually improving. business, appointing Nicholas Pollard as of the world increased by 16%, partially CEO of Construction Services UK. We Over the past few years, we have taken offset by a 12% reduction in the UK. also undertook a review of the regional significant steps to ensure that we are well placed to benefit from a market

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recovery in the building sector. Focusing In civil infrastructure we are seeing our acquisition strategy on particular opportunities although competition sectors and geographies has enabled us remains strong. 9 to broaden our footprint and harness new +5% Following the approval of the Student relationships. Streamlining the business Order book Transportation Bill in 2012, a number of accommodation from five to three regions, and the improvements civil infrastructure projects have moved contracts establishment of a national capability to tender stage. An increasing proportion centre, has ensured that we drive of civil and rail projects are being let on a innovation, develop best practice, share PPP or design build basis, which allows us knowledge and deploy talent across the to demonstrate our experience, expertise business to Strukton Rail BV, with the business nationally. This drove a 54% and innovation in this area. In December, disposal completing in January 2014. increase in order intake in 2013 versus we announced the award of a $343 million 2012, gaining market share. In Germany, trading has been very joint venture contract for the Regional disappointing which resulted in an Building market segments where we Transportation District in Denver to initiate underlying loss from operations of have seen significant opportunities and the first phase of design and construction £26 million mainly due to three complex those offering further potential into 2014 on the North Metro Rail Line project. joint venture projects with operational and include mission critical (data centres), International stakeholder issues, and continued low commercial/corporate facilities, student In Hong Kong, 2013 was a busy tendering levels of activity. We have made progress accommodation, multifamily housing period for our joint venture, Gammon to divest our interests in the business, and healthcare. Construction, which ended the period completing a management buyout of the Our buildings business continues with a strong order book. The market small signalling manufacturing capability to benefit from working with our has experienced a strong programme and closing down the switches and Investments business, not only in the of government spending on both crossing manufacturing capability. military housing area, but increasingly transportation infrastructure and public Discussions with a number of potential in other markets. Examples of projects buildings. In June, Gammon was awarded buyers for the remaining parts of the brought to our construction business a contract worth £720 million (HK$8.66 German operation are ongoing. At the from our investments business include billion) to design and build a major strategic half year, having reviewed the likely sales the Air Force Northern Group project – road. The HKSAR Highways contract to proceeds achievable on disposal, we a six-year project for the design, construct the Southern Connection wrote down the £38 million of goodwill construction and/or renovation of 4,500 Viaduct section of Tuen Mun – Chek Lap within our German business to £nil. homes, valued at approximately $442 Kok Link in Hong Kong is the largest solo million and new graduate and family civil engineering contract ever awarded Looking forward student housing project at the University to Gammon. In November Gammon Whilst the environment is still challenging of Nevada, Reno. Preferred bidder status won two significant rail contracts for in the UK, we have taken steps to improve was achieved on a number of other a combined value of approximately operational delivery. We continue to schemes including the $500 million £150 million (S$315 million) in Singapore: expect the mix of our order book to shift University of West Florida student the design and construction of the towards the regional business, as the accommodation project. Mayflower Station on the Thomson Line, ongoing recovery in the housing market and a sleeper replacement programme stimulates work for the regional business. on the existing North-South Line. The number of new major infrastructure projects to be awarded in the short term is Our joint venture in Dubai performed in expected to be low, with a small number line with our expectations with stable of significant opportunities expected to revenues in 2013. However, profitability arise. Our overall UK strategy remains to was down on 2012 as a result of exploit our market leading position, and to favourable bad debt and claim settlements continue to drive efficiency and build our in 2012. Looking into 2014, the business skills and depth of capability in construction environment is improving, and we would to capitalise on a gradual recovery. expect a return to somewhat modest volume growth for our main contracting In the US building market we expect business, whereas our subcontract to see a continued steady improvement mechanical and electrical engineering in market conditions and tender business is currently operating in opportunities. We expect the strong more difficult market conditions, order intake we have achieved in 2013 much like the UK. to lead to volume improvements in 2014, and we anticipate that a broader market HOUSTON CONVENTION Discontinued operations growth will lead to improving bid margins Following the completion of the CENTER on work for execution in 2015 and beyond. operational and strategic review of our Our strategy in US building is to leverage RIDA Development Corporation selected mainland European rail businesses we our world class processes, sector Balfour Beatty Construction US as a joint concluded that maintaining a rail presence expertise and innovation on a national venture partner with WELBRO Building in Mainland Europe was not consistent basis, targeting growth sectors. In US Corporation to build the new £207 with our strategy of building a strong local infrastructure we have significant (US$344) million 30-storey Houston presence in a number of market sectors. headroom to grow, especially as the Convention Center Hotel in downtown In Mainland Europe we essentially only market moves towards greater private Houston. This new project will add more operate in rail, and therefore in March investment and design and build projects. than 1,800 construction jobs and 700 2013 we announced our intention to permanent jobs to the Houston divest these operations. In March 2013 Overall, whilst margins are expected to hospitality industry. we sold the Spanish business to its remain under pressure, we anticipate management, and in December we improved profitability in 2014, with partial Sustainability Healthy Communities announced the sale of the Scandinavian recovery in margins. balfourbeatty.com/houstonconvention

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Performance review SUPPORT SERVICES

settlement of multi-year commercial contract worth a potential £1.5 billion with HIGHLIGHTS issues in the water sector. Thames Water. While the 23-month early • Revenue +10% as a result of strong contractor involvement is in our order Transportation also had a good performance in UK power and book (£10 million), the vast majority of performance with improved performances gas sectors this work is yet to be booked. Also under across Highway services, Local Authority AMP6, Yorkshire Water extended our • Strong underlying profit from roads and rail renewals. continuing operations with existing contract to 2020 which is worth improved operating margin The 2012 order book for power was £70 million. restated during the year following the In transportation, we were successful in • Executed in line with strategic reallocation of work packages with our winning important highways work for local objectives the disposal of internal joint venture with the Professional authorities. At the start of 2013 we added WorkPlace for £155 million. Services division. the £150 million Wiltshire Highways Operational performance contract to our order book. The contract commenced work in May 2013 and since % of total revenue The power sector, a key growth sector then we have been working progressively for the Group, now accounts for over a with the client to resolve a number of third of our support services activities. start-up issues. We won a £200 million We continue to develop our power contract with Herefordshire Council in July business in both overhead line and cabling and this project has mobilised in line with capabilities, whilst helping clients maintain our expectations. Other contracts in our 13% their significant asset base. On overhead portfolio, including West Sussex and the total revenue lines we made excellent progress on the street lighting portfolio, performed well. Beauly-Denny replacement electricity For the Highways Agency, the Area 10 transmission line contract for Scottish and contract to operate, maintain and improve Southern Energy. This contract involves over 500km of motorway and trunk roads the development, design and construction in the Northwest fully mobilised during Read more on p3 of a 200km overhead line and associated the year and there was excellent civil works. In cabling we continued to performance on the M25 contract. Financial performance make progress on the delivery of the Through our Connect Plus Services joint Humber Gateway offshore cabling The Support Services order book for venture we manage the operation and contract for E.ON. In the US there was continuing operations finished the year maintenance of 250 miles of road critical good performance on our New Energy at £4.1 billion, down 11% from a year ago to the UK’s transport network. (2012: £4.6 billion). As expected, the order Alliance with National Grid. book has declined in the power sector as The Gas Distribution Strategic Partnership we have completed the first year of the contracts with National Grid to replace £1.1 billion contract with National Grid to ageing networks in the Northwest and upgrade the UK’s gas distribution network. West Midlands are fully mobilised and are The order book has reduced in the water performing well. We also made progress sector as the AMP5 regulatory water cycle on our joint venture contract in the nears completion in 2015. Revenue for the Republic of Ireland to replace and extend year was up 10% at £1,265 million, as a the gas network on behalf of state result of strong performance in the power operator Bord Gais. 9 sector – up 18% on 2012. In the water market, we continued to contracts in the Underlying profit from continuing perform well on our AMP5 water UK Highway operations increased to £55 million contracts. As the AMP5 regulatory water Maintenance arena (2012: £30 million), resulting in an cycle draws to a close, we are working underlying operating margin of 4.3% with a number of water companies to compared with 2.6% in 2012. There manage a smooth transition to the AMP6 was a particularly strong performance, cycle without unnecessary changeover accompanied by better than expected disruption. As water companies choose high volumes on power transmission in their partners for the next cycle, we have the fourth quarter, as well as a small already won a three-way joint venture

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4.3% Operating margin

In the rail renewals market we continued to work with Network Rail and London Underground to renew and improve service levels across the rail network.

Discontinued operations In December, we completed the sale of our UK facilities management business to GDF Suez Energy Services for £155 million in cash. This sale represents an important step in our evolution as we intensify our focus on the creation and management of infrastructure assets. The business contributed £19 million to underlying profit from operations up to the date of disposal.

Looking forward We work for clients across the regulated and public sector, all of whom need to manage financial pressures, whilst improving the quality of the infrastructure that facilitates our daily lives. This will continue to provide opportunities for us, as clients look to outsource work, and seek innovative solutions in the provision WORKING INNOVATIVELY of that work, but also presents challenges WITH NATIONAL GRID in an increasingly competitive environment. In a joint venture with M.J. Electric we formed an alliance In the near term, we see growth coming with National Grid. This New Energy Alliance (NEA) provides from the water and local authority sectors. innovative ways for National Grid to deliver design, build and In the water sector, we are actively programme management of substations and transmission lines bidding for AMP6 contracts with a across New England, US. The outcome has been 28 varied and number of the major water companies challenging projects, with a total value of £300 (US$499) million, with a focus on offering broader solutions successfully completed on time and within budget. for clients leveraging on our recent success with Thames Water. The Read more online balfourbeatty.com/nea continuing outsourcing trend by local government will provide additional growth opportunities for Balfour Beatty Living Places, which increasingly, looks to leverage its strong position in the highways and street lighting markets industry across the globe as new sources of 2014. We anticipate our 2014 revenue to provide additional complementary of power in new places need to be will decline in this area by approximately services to local authority clients. connected into existing infrastructure. We £60 million. are well placed to take advantage of UK Volumes in the power transmission sector Looking to 2014 we expect overall cabling opportunities expected in 2014. are likely to reduce as current contracts revenues to drop in line with the order complete and we anticipate our 2014 We have continued to see increasing book. Taking into account the change revenue will be down about £100 million. competitive pressure in the routine rail in mix of business and some closure We will continue to target new renewals market over the year and are no costs of exiting the rail renewals work, opportunities outside the UK and seek longer bidding for Network Rail’s track margins are expected to reduce in 2014. opportunities in the power market linked renewal work, with our existing contract to the changing nature of the energy running to the end of the first quarter

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Performance review Infrastructure Investments

significantly above both the Directors’ We reached financial close on two projects HIGHLIGHTS valuation and our own expectations. in the student accommodation market • Strong financial performance, Despite the disposals, the PPP during the year: the £63 million Holyrood including £82 million in disposal gains investments portfolio remains substantial Postgraduate Student Accommodation • The portfolio remains substantial and diverse, and the Directors’ valuation and Outreach Centre project for the and diverse with a current increased to £766 million using constant University of Edinburgh and the £45 Directors’ valuation of £766 million discount rates at the end of 2013 (2012: million Penglais Farm New Residences £734 million) including the benefit of Project for Aberystwyth University. • Financial close on eight projects, £76 million of inflation and operational Notably these projects were financed with another three advancing to performance gains. with long term debt from institutional preferred bidder stage. investors, supporting the UK Government’s Operational review drive to encourage low cost pension fund We continued to perform well in 2013, investment in infrastructure. Building at % of total revenue reaching financial close on eight projects, both sites has commenced with the first with another three advancing to preferred phases of both projects contracted to bidder stage. The student accommodation be delivered in the autumn, although market remained a key growth area for us Aberystwyth has incurred programme in the US and UK in 2013, as we secured delays at the beginning of 2014 with the four new projects with a construction extreme weather conditions. We continue 6% value of over £500 million. to see further bidding opportunities in total revenue the sector in 2014. Our strategy to diversify further our economic infrastructure capabilities In the UK power sector, the preferred delivered successes with preferred bidder bidder appointment for the Gwynt y Môr appointment on the £346 million Gwynt project strengthened our position in the Read more on p3 y Môr Offshore Transmission Owners OFTO market. Greater Gabbard OFTO (OFTO) project and financial close on (£317 million) achieved financial close the Birmingham Bio Power waste wood in November, with the Thanet OFTO Financial performance gasifier project. These projects represent (£163 million) expected to reach financial The Investments business delivered significant progress for our business and close during 2014. Through these project another successful year of growth, the continued evolution of our portfolio. successes we have developed a leading establishing a strong presence in new investor position in this growing market In addition to growing the business in new markets and generating a significant and supported the Group’s wider strategy end markets we have continued to expand increase in underlying pre-tax profits to for developing our delivery capability our Investments business geographically. £132 million (2012: £97 million), whilst in offshore transmission. growing the value of the portfolio. The At the start of 2014 we achieved a pre-disposals operating profit of £20 million significant milestone as we secured We continue to see opportunities for was up £3 million on the previous year our first win in Canada, with a preferred development in the waste market, as strong growth in US military housing bidder appointment on the £196 million achieving financial close on two waste income and the favourable impact of cost (C$350 million) BC Children’s and projects in 2013, although these projects savings throughout the division more than Women’s hospital redevelopment project outweighed the decline in UK income as in Vancouver. The Canadian pipeline a result of disposals. Net interest income, remains strong and we are actively a significant element of total income, also pursuing a number of other social and increased by £2 million to £30 million. economic infrastructure opportunities. In Australia we are working on a Following another strong year, the number of waste, transportation disposals programme delivered an and accommodation projects. £82m increase in gains from £52 million in strong financial performance 2012 to £82 million in 2013, after UK including £82 million recycling £21 million (2012: £48 million) In the UK our most active markets were in disposal gains of revaluation reserves from other predominantly student accommodation, comprehensive income to the income power and waste. statement. The disposals realised value

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can suffer from planning delays. We were delighted to secure our first Infrastructure Partners (BBIP). Alongside We achieved financial close on the project success in Canada with the external investors we have a total Gloucestershire waste project, but this preferred bidder appointment in January commitment of $110 million, which we is currently subject to a planning appeal 2014 on the BC Children’s and Women’s expect to be drawn down and invested on which we anticipate the outcome hospital redevelopment project over the next three to four years. will be announced later in 2014. We representing a significant win for the The fund has so far raised approximately continue to work on a pipeline of biomass Group. Construction is expected to $500 million and made a number of opportunities. We are making good commence in April 2014 and the new investments and commitments, acquiring progress with our Essex waste treatment facility will be completed in June 2017. 10 operational UK solar projects in the UK, facility; construction is now well underway and entering into a definitive agreement and it is on schedule to open in 2017. Disposals programme (subject to regulatory approval) to acquire We had considerable success during 2013 a regulated electric utility business in North America as we continued our disposal strategy Michigan. We anticipate subsequent In the US, military housing remains a key through the full or partial disposal of a closes to the fund during 2014. aspect of our portfolio with 21 operational number of our mature UK PFI assets projects. In August 2013 we reached generating an accounting gain of £82 Looking forward financial close on the $442 million million, and at a value of £45 million in Our primary objective continues to be Northern Group project for the US Air excess of their Directors’ valuation. the investment in projects where we can Force, which consists of six bases. These included our 50% interests in use our investment skills and expertise This project requires managing all four PFI schools projects in Birmingham, to maximise the broader benefit to development, operations and Bassetlaw, Stoke and Rotherham; our the Group’s growth and development. maintenance, property management, 50% interests in two PFI hospital projects We will continue to evolve our developer construction, renovation and demolition in Salford and Tameside; and partial capabilities to realise new opportunities services for 4,540 homes. We again equity disposals in the Carlisle Northern for the Investments business and the demonstrated our ability to launch Development Route (CNDR) and A30/A35 broader Group. We have a significant innovative funding structures, with the road, where we have retained strategic pipeline of work globally as we project being financed by institutional interests of 25% and 20% respectively. continue to pursue a variety of PPP and investors through a bond issue in the US. We continue to see strong demand for non-PPP opportunities. We anticipate a In addition we also assumed property these assets in the secondary market. continuation of our disposals programme management services for the ACC III as a means of realising the value in mature Investment management business military housing privatisation project. assets, but expect the gains to revert to In 2011 we launched an investment a more sustainable level of approximately We have continued to make significant management business, Balfour Beatty progress in the student accommodation £40 million in 2014. market, as we share learning and best practice across geographies for the benefit of our clients. We completed the building of a 233-bed facility for Lake Forest College, Illinois. We successfully reached financial close on the University of Iowa and University of Nevada projects in 2013. In the third quarter of 2013, we announced two significant preferred bidder positions in this market with the $500 million University of West Florida project followed by our second preferred bidder appointment with Texas A&M University for the $200 million College Station project. We anticipate further growth opportunities in this sector in 2014. We are also progressing on our strategy to utilise our developer capabilities in North America. Through our involvement in the Lake Forest College project and Tarleton State University (Phase 1) project, we have created an opportunity to earn development fees, while also generating income for the Construction Services division without investing Group capital. This is further demonstration of how the investments business is able to deliver additional value to the wider Group beyond simply earning a return on developing STUDENT ACCOMMODATION invested capital. Diversification is also for texas a&m UNIVERSITY taking place in our military housing business as we explore opportunities for Our $200 million student accommodation project at Texas A&M third party management, leveraging our University is our sixth student accommodation project in the US. management service capabilities. We It is a collaboration between Balfour Beatty Campus Solutions secured our first win in this market in who will be lead developer and our US construction business, January 2013 with the Carriage House based in Dallas, who will be the construction partner. Townhomes project. Read more online balfourbeatty.com/texasstudent

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 36

Directors’ Valuation of PPP Concessions

The size and composition of our The Directors’ valuation is intended to Birmingham), 50% shareholdings in investment portfolio continues provide an indicator of the value intrinsic two hospitals (Tameside and Salford), in our PPP investment portfolio and 75% of our 100% shareholding in Carlisle to develop and reflects the illustrate movements in underlying Northern Development Route and 65% successful implementation of our values between periods, highlighting of our 85% shareholding in the A30/A35 investment recycling programme the impact of intervening transactions, concession. In each case the value through the application of a consistent realised was substantially above the as well as further investments methodology. It does not set out to Directors’ valuation. in new and existing markets. estimate the market value of the During the year Balfour Beatty achieved investments in the portfolio. We continue to achieve value through preferred bidder status on a student the disposal, either in whole or in part, The valuation is based on the forecast accommodation project for Aberystwyth of mature assets while continuing to investments and returns of the projects University and on the Gwynt y Môr hold strategic investments in individual based on current projections, and may Offshore Transmission Owners (OFTO) projects, or market sectors, which offer differ significantly from the book value of project. We successfully closed the downstream supply chain opportunities the investments shown in the accounts. Birmingham Bio Power project and two for the Group or potential areas for market US student accommodation projects The values are calculated using a growth. We remain active in using our for the universities of Iowa and Nevada. discounted cash flow methodology, investment capability to develop new In addition, shortly after year end discounting all future cash flows to markets and have successfully transferred Balfour Beatty won its first Canadian Balfour Beatty at a fixed rate. This rate our capability and experience to invest in a PPP hospital project in British Columbia. is 9.5% pre shareholder tax for the UK number of new sectors with eight projects This project is not included in the portfolio and 12% pre shareholder tax in the UK in student accommodation, Directors’ valuation as it had not for the US portfolio. off shore transmission and waste and achieved preferred bidder status three student accommodation projects As part of our investment recycling at 31 December 2013. in the US. programme we sold part or all of the We were also appointed preferred bidder Group’s stake in eight PFI projects in on two student accommodation projects 2013: 50% shareholdings in four schools in the US but these have not been (Stoke, Rotherham, Bassetlaw and included in the Directors’ valuation

Portfolio valuation December 2013 Value by sector Value by phase 1 1

5 5 4 2 3 4 3

No. projects 2013 2012 No. projects 2013 2012 Sector (2012) £m £m Stage (2012) £m £m 1 Roads 12 (12) 253 260 1 3+ years post construction 10 (13) 113 150 2 Hospitals 5 (7) 144 156 2 0–3 years post construction 16 (18) 385 355 3 Schools 9 (13) 68 91 3 Construction 9 (6) 24 26 4 Other 11 (9) 69 44 4 Preferred bidder 2 (4) 12 20 BB Investments UK 37 (41) 534 551 BB Investments UK 37 (41) 534 551 5 BB Investments US 24 (22) 232 183 5 BB Investments US 24 (22) 232 183 Total 61 (63) 766 734 Total 61 (63) 766 734

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 37

Movement in value 2012/2013 £m

Inflation and Equity Distributions Disposal Gain on Unwind New project operational FX 2012 invested received proceeds disposals of discount Rebased wins performance translation 2013 BB Investments UK 551 25 (54) (128) 45 52 491 2 41 – 534 BB Investments US 183 23 (29) – – 22 199 2 35 (4) 232 Total 734 42 (79) (128) 45 74 688 6 76 (4) 766 as the clients are yet to determine the Together, these changes give us the and costs across the portfolio. The US financial structure of the projects. ‘rebased’ figure. The rebased figure is portfolio also shows a large increase the roll forward of the prior year valuation, which is primarily due to higher than The table above shows the changes adjusted for known movements expected increases in rental allowances in the value of our portfolio over the past before new wins or changes in in US military housing projects year, based on: operational performance. • LESS the effect of foreign exchange • the 2012 valuation • PLUS new project wins during the year movements on our portfolio value. • PLUS equity invested during the year • PLUS inflation and operational Together, these give us the valuation of • LESS distributions received during performance gains, which reflect the 61 PPP projects in our portfolio at the the year improvements or reductions in the end of 2013, which includes three projects performance of the investments – these at preferred bidder stage (two in the • LESS the sale value of disposals during may be due to changes in inflation, UK portfolio and one in the US). the year changes in demand, revisions to costs The graphs below give the value of each • PLUS the gains we made from and other factors. The UK portfolio is portfolio over a range of pre shareholder disposals in the year over and above the showing a large gain in performance tax discount rates. Directors’ valuation of those interests this year, primarily due to the recognition of higher inflation to date • PLUS the ‘discount unwind’ – the on the M25 concession upon leaving increase in value as time passes, construction stage, and more generally bringing future distributions closer improvements in forecast inflation

Valuation – The portfolio value at a range of discount rates Balfour Beatty Investments UK Balfour Beatty Investments US

900 350

300 800 254 250 231 700 213 615 200 203 600 183 599 551 150 166 497 500 534

Directors’ valuation £m valuation Directors’ £m valuation Directors’ 100 480 400 50

300 0 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% Discount rate Discount rate 2013 2012 2013 2012

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THE WAY Health and safety WE WORK

The reach of Balfour Beatty In 2013, we set new and to measure progress against the Zero spans many countries, cultures challenging requirements Harm Roadmap and GSPs gap analysis performed early in the year. They also and operating environments. for our business. served as a discussion forum for concerns It is therefore key that we operate We launched our Zero Harm Roadmap around meeting specific requirements to high ethical and professional that charts the Health and Safety (H&S) and established a process to review H&S annual action plans by which each standards regardless of location. maturity from a level of minimum expectation in 2013 to one of Health and successive level of H&S performance Our approach to sustainability Safety excellence by 2017. Alongside the will be achieved. is broad and reflects a Roadmap we introduced our Global Safety In 2014 and beyond, our Zero Harm goals Principles (GSPs), a set of rules that of zero fatalities, zero disabling injuries, conviction that sustainability define the way we work, developed as zero injuries to members of the public strategy should be central a result of investigations into serious and zero new cases of long term harm to how we run the business. incidents across the business. Each of to health, will remain. As we head into our business areas has developed plans 2014, we are renewing our focus on the to improve safety in these key areas. elimination of fatal risks and increasing the Read more about our GSPs online level of personal accountability for safety. Despite the overall improvement, there Our overall Group performance once again were, unfortunately, five work related improved in 2013. fatalities during 2013 across our Group – two in the UK, two in Germany and one The Group Accident in our joint venture business in Hong Frequency Rate (AFR) Kong. (2012: 8, 2011: 5). All the individuals Improved by 19% down to 0.13 from killed were employed by sub contractors. 0.16 in 2012. 81% of our businesses In 2013, there were also three non-work recorded an improved or zero AFR for 2013. related fatalities. Every fatal accident is subject to a thorough investigation and a detailed review by the –19% Chief Executive and his executive team. 2013 0.13 Lessons learned are shared across the Group to help improve future performance 2012 0.16 and prevent it happening again. 2011 0.17 As a result of workplace injuries, our workers lost 5,996 days during 2013. This Major injuries is an improvement on 2012 (6,342) and a 130 major injuries were reported in 2013. significant 35% reduction on 2011 (9,218). This is a 29% improvement on 2012 and According to incident data collated and a 31% improvement on 2011. Of those prepared by ENCORD (European Network major injuries reported two were of Construction Companies), these classified as permanently disabling figures represent some of the lowest compared to one in 2012. levels of absence due to workplace injuries compared to our competitors across Europe. 3,273 total injuries were sustained by our workforce in 2013 –29% which is 15% less than 2012 (3,845). 2013 130 From 2014, we have replaced Accident 2012 184 Frequency Rate (AFR) with Lost Time Injury Rate (LTIR) as our primary lagging 2011 189 indicator of H&S performance. LTIR includes all lost time injuries and injuries Injuries to the public resulting in restricted duty and transfers. There were 110 injuries to members of As such, this universally recognised the public in 2013, a reduction of 4%. measure, is a better indicator towards our goal of Zero Harm. For future comparison our LTIR in 2013 was 0.23 compared to 0.26 in 2012 and 0.29 in 2011. –4% During 2013, 12 Chief Executive reviews 2013 110 were held covering each business area 2012 115 and joint venture business. These intensive 2011 127 reviews allowed Andrew McNaughton

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Ethics and Values

We have continued to As ever, we continue to emphasise the embed our ethics, values and importance of promoting our Ethics Helpline and other channels by which Awarded compliance programme across employees, sub contractors and suppliers, Best Supplier the business, building on the and others can raise concerns about Code of Conduct sound foundations developed possible unethical conduct. We have witnessed a stabilisation in the number by the Red Flag Group, over the previous three years of such cases over the last two years, describing our Code as and focusing in areas where but we still receive what we consider “one of the most cutting we believe we are most at risk. to be a healthy number, indicating that edge, innovative and people continue to share our commitment complete codes out Through our ongoing cycle of corruption to upholding our Code of Conduct. there today” risk assessments, training, reviews of We treat each case sensitively and financial and commercial activities and investigate it thoroughly. audits of our anti corruption procedures we have focused on assessing how well Since we launched the Code of Conduct embedded our programmes are. training, 90% of our office based employees have completed module 1 Number of Ethics Helpline cases Human rights have rapidly increased in and 84% have completed module 2. prevalence and are emerging as a new ethical risk priority. We view human Unfortunately we do not always get this rights primarily as an extension of our right. We have previously acknowledged 276 using the services of the Consulting determination not only to treat our 2013 276 employees with respect but also to obtain Association up until 2009 to carry out assurance about ethics in our supply reference checks (blacklisting) on 2012 273 employees in the construction industry. chain. Wherever we work in the world 2011 280 we ensure we do not exploit anyone and It should not have happened and we have we will refuse to work with any individual apologised to the workers and families Number of Ethics Helpline cases or organisation that fails to uphold these who may have been adversely affected (excluding HR grievances) standards. Intrinsic to our values is our over the years by this. belief in upholding the fundamental rights For Balfour Beatty, this is an historic issue. and freedoms of individuals set out in Following the receipt of the Information the United Nations Universal Declaration Commissioner’s Enforcement Notice 205 of Human Rights. in 2009, we took steps to address the 2013 205 One of the features of 2013 has been shortcomings revealed in our data the gradual increase in the number and protection practices, which included 2012 221 rigour of questions from clients seeking the introduction of a Group wide data 2011 232 assurance about our ethics and values protection policy and a revised ethical Code of Conduct, both introduced in 2009. and, specifically, our anti bribery Since its inception the number of compliance programme. Similarly, we Balfour Beatty is one of eight UK office based employees to have continue to work with our own supply construction companies which have joined completed Code of Conduct module 1 chain to embed a shared commitment to together to establish The Construction ethical business conduct, helped by our Workers Compensation Scheme to Code of Conduct for our sub contractors, compensate workers whose names were suppliers and partners. on the Consulting Association database. 90% It is important to do more than just have a The scheme is expected to launch in 2014. Code of Conduct. We also need to ensure Since its inception the number of it is properly embedded throughout the office based employees to have organisation and that we work with completed Code of Conduct module 2 partners and suppliers who have similar values. We have an extensive programme of compliance internally and it is pleasing 84% to note that during the year, the Red Flag Group awarded us ‘Best Supplier Code of Conduct’, describing our Code as “one of the most cutting edge, innovative and complete codes out there today.”

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THE WAY WE WORK CONTINUED People

In 2013, the Group has sought being the EMEA based Company with to maintain its commitment to the ‘Best Global Mobility Programme in the Industrial/Energy Sector.’ The development, career progression Company also won the silver award Times and active talent management with the ‘Most Effective Relocation across its global workforce of Management Strategy 2013.’ Balfour Top 100 Beatty had 136 international assignees approximately 40,000 employees. at the start of 2013, with a further 120 We regained our position as one of the The reduction in workforce numbers expatriate assignees during the course UK’s leading graduate from approximately 50,000 employees of the year and a further 70 employees employers in the reported in 2012 is largely related to the who either redeployed internationally Times ‘Top 100’ divestment of WorkPlace in December on an immediate local basis or were 2013. By continuing to invest in the localised during the year. capabilities and leadership of our people, We also joined other UK employers in we continue to both enhance the quality the 5% Club to create momentum for of services we deliver to our clients and graduate and apprentice recruitment Across our entire workforce, our female communities and promote the Group as and development, by committing to 5% employees account for 22% (2012: 23%, an ‘employer of choice’ so we attract of our workforce to structured training 2011: 25%) a modest reduction, despite and retain the best people in our sectors. schemes in the next five years. To meet the divestment of WorkPlace which Comprehensive training and people this commitment, we will be reporting had a disproportionately higher female development programmes are embedded progress towards this goal in future employee population. However, within within each business area and country, Annual Reports against the 2014 senior management, this figure is 12.9% as appropriate, to ensure close and timely starting point set out below: (2012: 12.3%, 2011: 12.6%). Whilst there alignment to the specific demands and are many commendable actions taking Graduates challenges of our respective global 428 place across the Group in this area, there markets. These are also conducted within Represents graduates recruited remains considerable work to be done the context of a Groupwide Organisation over the last three years on a to achieve our aspirational ‘best in class’ and People Review (OPR) to ensure graduate training programme. state. We have developed a Diversity consistency of methodology and visibility 125 were hired in the UK in Action Plan, integrated into our to talent, succession planning and career 2013 as part of a global graduate Sustainability Roadmap, which includes opportunity across the Group. The OPR hiring population of 428 (29.2%). multiple activities to improve the mix also enables the centralised and focused Apprentices 258 of our workforce at all levels, including development of key leadership talent. Sponsored students 46 proactive recruitment measures, unconscious bias training, leadership Total structured trainees in UK 724 During 2013, we continued to run a development participation and the small number of centrally sponsored Total UK workforce 21,729 establishment of affinity networks development programmes. One % structured trainees 3.3% across the business. programme, the Advanced Management Programme, is designed to support the The Group has improved in its Female employees across transition of participants to leadership commitment to diversity and inclusion, entire workforce positions and to enable them to network maintaining our Bronze rating in the UK 22% and share knowledge with others ‘Opportunity Now’ and ‘Race for 2013 from across the business and different Opportunity’ gender and racial diversity 2012 23% functional activities. This was expanded in assessment ratings. We were also 2011 25% 2013 to include ‘unconscious bias’ training commended for our leadership to enhance our commitment to diversity commitment to diversity and the content and inclusion amongst our leaders. of our Group diversity strategy and action We regained our position as one of the UK’s leading Graduate Employers in the Our agility in deploying talent and plans. In 2013, of the 125 graduates recruited in the UK, 22% were women Times ‘Top 100’ and were recognised as experience to develop infrastructure one of the leading construction companies opportunities across multiple geographies and 18% from an ethnic minority background, compared with 101 recruited to work for by the ‘Job Crowd’ whilst our is a key differentiator and Balfour Beatty US construction business was recognised received the gold award from the Forum in 2012 of whom 21% were women and 15% from an ethnic minority background. by Fortune magazine as one of ‘the best for Expat Management in recognition of companies to work for’ for a fourth consecutive year. Male Female Total % male % female PLC board 8 2 10 80 20 Directors of subsidiaries 423 42 465 91 9 Senior Management1 163 24 187 87 13 Group 30,117 8,495 38,6122 78 22

1 Members of Group Head Office and Divisional Senior Leadership teams. 2 Excluding discontinued operations.

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ENVIRONMENTAL PERFORMANCE

At the beginning of the year team secured a renewed commission Scope 1 & 2 carbon intensity we revisited our sustainability for sustainability advisory services to the Scope 1 and 2 greenhouse gas emissions California High Speed Rail Programme intensity has reduced by 12% (tonnes strategy and aligned it more this year. CO2e/£m). closely with the long term goals Scope 1 and 2 carbon emissions of the business, namely to be Since establishing our baseline in 2010, client focused, embedded in we have reduced our overall scope 1 –12% and 21 emissions by 31,459 tonnes of the local community, efficient, 2013 35.6 CO2 equivalent (CO2e) by 7%. innovative and responsible. 2012 40.4 Our CO e emissions/£m turnover dropped The leading position we now occupy in 2 from 42.4 tonnes of CO e/£m to 35.6 2011 42.7 sustainability strategy and performance 2 tonnes of CO e/£m since 2010. is a consequence of a concerted effort 2 CDP to develop knowledge and practice in all In the UK, our Scope 1 and 2 emissions Our score in the most widely used global our businesses over the past seven years. have come down from 264,343 tonnes sustainability index, measuring carbon In most markets we are a recognised of CO e in 2010 to 192,231 tonnes of 2 performance and environmental sustainability leader and valued adviser CO e in 2013. 2 governance has increased since 2012 to our clients. Our 2015 goal is to achieve a minimum This position is reflected in our Carbon reduction of 20% of our Scope 1 and 2 Disclosure project (CDP) score of 87/100, emissions (against a 2010 baseline). which places us second in our sector. These targets will mean reduced +12% We were also rated Gold in the BitC operating costs for our businesses and 2013 87/100 index. The quality of our reporting was therefore improved value to our clients once again recognised by the Building and shareholders. 2012 78/100 Public Trust Awards FTSE 250 2011 78/100 Additionally, a number of our clients have Sustainability Report Award where expressed an intention to prequalify we were ‘Highly Commended.’ contractors on the basis of their carbon Water intensity More importantly, this leading position performance in the future. Since improving our approach to is reflected in the performance we have monitoring water we have seen a small, Gammon, our joint venture in Hong Kong delivered along key dimensions of improvement in our water intensity accounts for approximately 22% of our 3 sustainability – such as carbon, waste (m /£m) in the areas of our business Scope 1 and 2 emissions. In 2013, it and local employment – for our clients. where we monitor this. became the first construction company Standards in Hong Kong to implement ISO 14064-1, Sustainability is an integral part of modern the international standard for quantifying infrastructure projects: our public sector and reporting greenhouse gas (GHG) –3% emissions, and to have its Scope 1 and 2 clients require conformance to standards 2013 339 such as BREEAM, LEED and CEEQUAL GHGs independently verified. This and these are also a key consideration verification was carried out by SGS. 2012 348 for planning authorities. Sustainability Further information on the measures we 2011 307 is allowing us to enrich the dialogue we have taken to reduce our CO2 emissions have with our clients. Our knowledge can be found online. Waste intensity allows us to help them achieve the Improvements in our reporting and the required standards efficiently and to balfourbeatty.com/efficient introduction of new projects have led to incorporate features that enhance the 1 Scope 1 emissions include those resulting from an increase of our waste intensity (tonnes whole life performance of their projects. the combustion of the fuel and operation of of waste sent to landfill/£m) in the areas facilities, Scope 2 emissions result from the Sustainability advisory services enhance purchase of electricity, heat, steam and cooling of our business where we monitor this. our programme management offering. for own use. The full descriptions can be found For example the Parsons Brinckerhoff within our reporting guidelines found at www.balfourbeatty.com/efficient. +10% 2013 98 Absolute tonnes of CO2e Base year 2012 89 2010 2011 2012 2013 2011 100 Scope 1 347,011 361,994 331,823 305,398∆ Scope 2 119,058 135,830 133,938 129,212∆ Total gross emissions 466,069 497,824 465,761 434,610 Total carbon emissions per £m revenue 42.4 42.7 40.4 35.6

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 42

THE WAY WE WORK CONTINUED ENVIRONMENTAL PERFORMANCE TAXATION CONTINUED

GHG reporting and assurance Our tax strategy, approved by the Our greenhouse gas (GHG) emissions Board, is to sustainably minimise are reported in accordance with the UK Government’s GHG reporting 4 our tax cost whilst complying requirements covering all six Kyoto gases. environmental incidents with the law. In doing so, we We use the operational control approach resulting in enforcement ensure we act in accordance under the GHG Protocol Corporate actions and fines Accounting and Reporting Standard with our ethics, values and (revised edition) to report emissions from compliance programme. We our operations around the world. This always consider the financial includes assets that are otherwise not referred to across the rest of the financial and reputational risk arising from statements. We developed reporting our management of tax issues, guidance specific to our business for the with the aim of maximising long calculation of GHG emissions which can term shareholder value. be found online. We have determined The level of assurance provided for and reported the emissions we are a limited assurance engagement is We have an open, honest and positive responsible for within this boundary substantially lower than a reasonable working relationship with HMRC and are and do not believe there are any material assurance engagement. In order to reach committed to prompt disclosure and omissions. We use the UK Government’s their opinion, KPMG LLP performed a transparency in all tax matters. Where carbon conversion factors that were range of procedures which included disputes arise with tax authorities with updated in 2013 to calculate our interviews with management, examination regard to the interpretation and application emissions into equivalent tonnes of reporting processes and documentation, of tax law, we are committed to of carbon dioxide (CO2e). as well as selected data testing at an addressing the matter promptly and operating company and Head Office level. resolving it with the tax authority in an We have incorporated landlord A summary of the work they performed is open and constructive manner. emissions data for the properties we included within their assurance opinion. rent or lease (where we are not the The Group makes a major contribution utility bill payer) to meet the new GHG Non financial performance information, to the tax revenues of governments from reporting requirements. We have also GHG quantification in particular, is subject its activities in over 80 countries in which incorporated emissions data for Parsons to more inherent limitations than financial we operate. For example, the Group’s Brinckerhoff North America and Indonesia information. It is important to read the UK tax contribution extends significantly in the 2013 data set; these were not selected GHG performance information beyond corporate tax, where the size of reported previously. contained within the Annual Report and our workforce means we not only collect Accounts 2013 in the context of KPMG very large amounts of income tax, but We have restated our Scope 2 emissions LLP’s full limited assurance opinion. also pay over £100 million in employer’s to account for the Government’s changes Our reporting guidelines for the selected national insurance contributions in a to electricity conversion factors (ie the GHG performance data are available typical year. removal of the grid rolling average) and on our website. updated our emissions data for 2010, 2011, and 2012 as a result. balfourbeatty.com/reporting We engaged KPMG LLP to undertake Environmental protection a limited assurance engagement, Against a backdrop of tighter global reporting to Balfour Beatty only, using environmental legislation, we had just four the International Standard on Assurance environmental incidents (2012: 4, 2011: 6) Engagements (‘ISAE’) 3410: ‘Assurance resulting in enforcement action and Engagements on Greenhouse Gas fines totalling £13,260 (2012: £66,800, Statements’ and ISAE 3000: ‘Assurance 2011: £18,800). Engagements Other Than Audits or Reviews of Historical Financial 7,000 Information’ over the selected greenhouse over 7,000 hours gas (GHG) performance data that have of volunteering by been marked in this report with the our US teams symbol ∆ (see table on page 41). KPMG LLP has provided an unqualified opinion in relation to the selected GHG performance data and their full assurance opinion is available in the sustainability section of our website. Read more online

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 43

Connecting with our communities

Our business helps build healthy Our US construction business, has communities and we strive to adopted the Balfour Beatty Spirit programme which has contributed over achieve this as well through US$1.4 million to a variety of charitable the community engagement causes. Examples of our charitable programmes we support. projects include: Through the Balfour Beatty Charitable • building or refurbishing more than 65 Trust, we work in partnership with £383,100 houses for elderly low income residents contribution by the charitable partners in the UK and support, of Dallas through the Hearts & Hammers Balfour Beatty Charitable through funding and volunteering effort, programme – an 18 year commitment Trust in 2013 specific projects which are targeted at • donating pro bono construction services improving the employability and to build the Castle of Miracles and other employment opportunities of young facilities at Give Kids the World Village in disadvantaged people. We also believe Orlando, Florida, this provides seriously that participation in sport has an important provided by the Company, our Trust has ill children and their families with a well role to play in helping build self-confidence, contributed over £2 million, as well as deserved escape and a week of fun team skills and healthy lifestyles. having been instrumental in organising in Disney theme parks in-kind support, including employee With unemployment amongst young volunteering. • building school playgrounds for disabled people at such high levels in many of our children in Charlotte, North Carolina. markets, this theme particularly resonates Outside the UK, our businesses and with us and with our employees. We have employees participate in a wide range of In South Africa, we have been examining the opportunity to help nurture the next community-led activities, contributing how we can work more strategically and generation of workers, not only for their both financially and through volunteering. long term with social enterprises, charities own health and well-being, but also more and schools and have provided financial In the US, we have developed our broadly, for the wider economy and our support to help with food and shelter for Community Involvement Challenge, which sectors, in particular. poor, homeless and unemployed mothers provides employees of Parsons and their children. In Australia, we have In the UK, through our charitable trust, we Brinckerhoff with the opportunity to take been helping to maintain essential have built strong relationships with Action part in a friendly but competitive challenge infrastructure in remote aboriginal for Children, the Coram Foundation and to create community engagement events communities and have provided essential the Prince’s Trust and, in addition from outside the workplace. Not only does this training in carrying out day-to-day tasks 2013, with a new partner, Barnardo’s. help teamwork but, in 2013, over 7,000 like cleaning solar panels and checking hours of volunteering effort and over 220 Since 2009, via a mix of employee fuel levels. pints of blood have been donated by staff. fundraising and core financial support Balfour Beatty has been the lead sponsor of the London Youth Games since 2008. During this period, participation in the Games has multiplied fourfold. For our business it brings multiple benefits including engaging our employees who volunteer at the Games, supporting government relations, helping client relationships and supporting the communities around London where we operate. Despite the adverse economic conditions which have existed over recent years and which inevitably has led to variable contribution levels, we are enormously GET INTO & THE PRINCE’S TRUST proud of the way our employees have continued to engage with and support In 2013, we provided 11 young unemployed Londoners with a step our core charitable programmes. up on the career ladder through the Prince’s Trust’s ‘Get into’ construction programme. ‘Get into’ provides young disadvantaged people with the skills and confidence they need to find a job. Since 2009, we have supported more than 200 young people across the UK through work placements on ‘Get into’. This is the fourth of 18 courses Our 2013 Strategic Report, from planned and we remain committed to sharing our knowledge and expertise pages 1 to 43, was approved by with young people to help them get into work and develop their careers. the Board on 5 March 2014. Andrew McNaughton Sustainability Healthy Communities Chief Executive balfourbeatty.com/sustainability

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CH AIRMAN’S Introduction Balfour Beatty is committed to applying the very highest standards of corporate governance wherever it operates.

We have continued to apply the much more directed at merit, experience UK Corporate Governance Code and skills. More information on our diversity programme across the and, in respect to its main organisation is set out on page 40. principles, I would like to draw Accountability your attention to the following: We continue to believe that the Leadership and effectiveness Company’s policies and procedures Our areas of focus for the Board in 2013 enable the Board to present a fair, and 2014 are summarised in the adjacent balanced and understandable assessment column. In the pages which follow, I have of the Group’s trading position and its set out how we have been addressing prospects. We continue to keep under these items as a Board; whether through review the terms of reference of the Areas of focus in 2013 Board and its Committees and will make • Transition to new Chief Executive the Directors collectively, or via the Board Committee structure. adjustments as considered necessary. • Appointment of two non-executive Any changes to the terms of reference Directors The transition from Ian Tyler to are published on our corporate website. Andrew McNaughton as Chief Executive, Towards the end of 2013, the Audit • Operational delivery – focus on went smoothly. Committee carried out a comprehensive Construction Services UK and review of its terms of reference in light implementation of its recovery plan During 2013, two of our non-executive Directors, Mike Donovan and Hubertus of best practice, which culminated in a • Implementation of business strategy Krossa, retired after several years of proposal coming forward to the Board in – concentrated focus on key successful service on the Board. Both January 2014. The proposal was accepted recovery markets, UK and US have been replaced, as referred to in and the Audit Committee has now been renamed the Audit, Risk & Assurance • Remuneration policy review – my Chairman’s Review on page 1, with Directors who bring with them, amongst Committee to reflect this increased dialogue with shareholders level of focus on risk more generally. completed in Q1 2013. No other things, a wealth of experience of related sectors and a sound knowledge The Committee will, in future, meet fundamental changes to the policy five times each year with a separate proposed for 2014. of building businesses in an international and professional services environment. meeting concentrated entirely on risk Areas of focus in 2014 Although Belinda Richards and Bill related matters. • Operational delivery Thomas only joined us in September Read more online in our Investors section 2013, they have already attended several • Financial performance including Board and Committee meetings as well Remuneration cash generation. as strategy working group meetings. In Q1 2013, the Remuneration Committee They have also given significant time to carried out a limited consultation exercise participating in a comprehensive induction with major shareholders on the structure programme which has enabled them to and targets of the annual incentive plan meet with senior leaders in each part and the long term performance share of our business. plan. These proposals were broadly accepted by those shareholders and the Diversity proposals were subsequently included We have reported elsewhere in this report in our Remuneration Report, which was on our diversity and inclusion programme, submitted to shareholders for approval, which extends over a three-year at the Annual General Meeting in timeframe to 2015. Belinda Richards was May 2013. Although the resolution had appointed as our second female Director an overwhelming majority, we were increasing the female composition of our disappointed that there was a 25% vote Board to 20%. Although, as a policy, we against the Remuneration Report. We had strongly support greater diversity in all its not received any notification ahead of the forms, not least gender diversity, as an AGM that there was any disquiet with the important objective for the Group, we content of the report and, in the absence do not believe in the concept of gender of any information to the contrary, believe quotas, our preferred approach being

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this understandably reflected shareholder concerns following the publication of our trading update in April which signalled a poor performance in Construction Services UK. We will continue to maintain our close dialogue with shareholders on remuneration matters. The remuneration policy will be subject to a binding vote for the first time at our AGM in May 2014.

Relations with shareholders Our investor relations programme remains of critical importance to the Board and this is why, at each of our meetings, we receive a comprehensive report from our investor relations team, as well as receiving, at regular intervals, updates from analysts and the feedback from any meetings which the Directors, including myself, may have held with shareholders. Further information on our investor programme is set out on page 65. Our continued commitment of resources and time to investor communication in our major home market of the US continues to derive benefits and around 16% of our share capital continues to be held by US investors. We will continue to seek out ways how this proportion might grow over time.

Steve Marshall Chairman

MEASURING a LASTING LEGACY We are replacing the existing 132kV overhead line from Beauly to Denny with an upgraded 400kV line, capable of carrying much more electricity, on behalf of Scottish Hydro Electric Transmission. Through collaborative working with our client, we are developing a data framework to measure the social, economic and environmental impact of major projects to improve the planning and implementation of future projects.

Sustainability Environmental Limits balfourbeatty.com/beaulydenny

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BOARD OF Chairman and executive Directors DIRECTORS

Steve Marshall Andrew McNaughton Non-executive Chairman Chief Executive Age 57. Appointed a Director in 2005 Age 50. Appointed to the Board as and Chairman in May 2008. He is Chief Operating Officer in 2009, he non-executive chairman of Wincanton plc additionally assumed the role of Deputy and Biffa Group Holdings Limited, and Chief Executive in 2012 and was appointed a non-executive director of Halma p.l.c. Chief Executive in March 2013. He joined He is a former chairman of Delta, Torex Balfour Beatty in 1997, having spent Retail and Queens’ Moat Houses. He was 12 years with the Kier Group, and held the chief executive of Thorn and of Railtrack position of managing director of Balfour Group, having also served as group Beatty Civil Engineering from 2004 to 2007, finance director at each company. His when he became Group managing director earlier career included a wide range of with responsibility for civil engineering corporate and operational roles at Grand in the UK and the Group’s interests in Metropolitan, Black & Decker, BOC the Middle East. He is a Fellow of the and Burton Group. He is a Fellow of the Institution of Civil Engineers, a Liveryman Chartered Institute of Management in the Worshipful Company of Engineers Accountants and a member of its and a vice-president of the Institution of governing council. Civil Engineers. In January 2014, he was appointed a Business Ambassador by 2 3 4 the UK Government, to promote British infrastructure capabilities globally. 3 5 6

Duncan Magrath Peter Zinkin Chief Financial Officer Planning and Development Director Age 49. Appointed to the Board in 2008. Age 60. Joined the Group in 1981 and He joined Balfour Beatty in 2006 as became Planning and Development deputy finance director from Exel. He Director in 1991 after a series of senior spent 13 years at Exel in a number of positions in the finance function. He senior finance roles in both the UK and is responsible for the Group’s merger, US, latterly as director of investor relations acquisition and divestment activities Board Committees Colour Code: and financial strategy. Prior to this he as well as the development of Group 1 Audit, Risk & Assurance worked at Price Waterhouse. He is a strategy. Previously, he worked at the non‑executive director of Brammer plc London Business School and UMIST. 2 Business Practices and a Fellow of the Institute of He is a governor of Birkbeck, University 3 Nomination Chartered Accountants. of London. 4 Remuneration 5 6 5 6 5 Group Tender and Investment

6 Finance and General Purposes Chair

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NON-executive Directors

Robert Amen Iain Ferguson CBE Maureen Kempston Darkes Non-executive Director Senior Independent Director Non-executive Director Age 64. Appointed a Director in 2010. Age 58. Appointed a Director in 2010. Age 65. Appointed a Director in 2012. Until 2009, he was chairman and chief Until 2009, he was chief executive of She joined General Motors Corporation in executive officer of International Flavors Tate & Lyle. Prior to joining Tate & Lyle 1975 and held a number of progressively & Fragrances Inc (IFF). Prior to joining in 2003, he spent 26 years at Unilever senior roles during her time with the IFF in 2006, he spent over 25 years at in a succession of roles culminating in business, culminating in her appointment International Paper in a succession of his appointment as senior vice-president, as group vice-president for General roles culminating in his appointment as corporate development. He is Motors’ Latin America, Africa and Middle president and member of the board. non‑executive chairman of Berendsen plc East operations. She retired from General He was also a director of Wyeth, the US and Stobart Group Limited and a Motors in 2009. She has a portfolio of pharmaceutical and healthcare company, non‑executive director of Greggs plc. non-executive directorships including until its acquisition by Pfizer in October He is also chairman of Wilton Park, Brookfield Asset Management, Canadian 2009. He is a non-executive director an independent and non-profit making National Railways, Enbridge Inc and Irving of New Page Corporation, a US Executive Agency of the British Foreign Oil Company. She is a member of the manufacturer of coated papers, and and Commonwealth Office and lead Canadian Government’s Science, currently serves as an executive-in- independent director at the Department Technology and Innovation Council. residence at Columbia Business School. for Environment, Food and Rural Affairs. He was formerly a non-executive director 2 3 4 1 2 3 of Sygen International.

2 3 4

Belinda Richards Graham Roberts Bill Thomas Non-executive Director Non-executive Director Non-executive Director Age 55. Appointed a Director on Age 55. Appointed a Director in 2009. He Age 54. Appointed a Director on 1 September 2013. Until 2010, she is chief executive of Assura Group, a UK 1 September 2013. Until 2009, he was was global head of Deloitte’s Merger primary healthcare property company senior vice-president and general manager, Integration and Separation Advisory and was formerly finance director of The Europe, the Middle East and Africa of Services business, a business she started British Land Company between 2002 and Hewlett-Packard. Prior to this, he held a and successfully grew. Prior to this, she 2011. Prior to that, he spent eight years at succession of senior roles at Electronic was vice-president of Cap Gemini, Ernst & Andersen, latterly as a partner specialising Data Systems (EDS), culminating in his Young’s Post-Acquisition Integration and in the real estate and government services appointment as executive vice-president Separation Services business, and was sectors. He is a Fellow of the Institute for EDS Europe, the Middle East and previously at KPMG. She is currently a of Chartered Accountants. Africa. He is currently a non-executive non-executive director of Grainger plc, director of The Co-operative Bank plc, GFI Resolution Limited and Friends Life 1 3 4 Software SARL and Xchanging plc. He is Limited and a member of the advisory also chairman of the international advisory council of the Centre for the Study of board of Cranfield School of Management Financial Innovation. and a member of the advisory board of Leeds University Business School. 1 2 3 1 2 3

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Directors’ Report

Balfour Beatty Governance Framework Compliance with the Code The UK Corporate Governance Code 2012 THE BOARD (the Code) is the standard applying to good corporate governance practice in the • Group strategy UK and the Financial Conduct Authority • Annual budgets and financial reporting requires listed companies to disclose whether they have complied with the • Interim and final dividends provisions of the Code throughout the • Major acquisitions, disposals and capital expenditure financial year. • Financial and human resources The Company has complied with the requirements of the Code throughout the • Values and ethical standards accounting period, other than in respect • Risk management and assurance of the effectiveness of the Group’s whistleblowing procedures which is kept under review by the Business Practices Committee and not by the Audit, Risk & Assurance Committee. The principal reason for this is that the Business Practices Committee, in particular, focuses on the Company’s business conduct, its ethics and Audit, Risk & Assurance Nomination Committee values, ensuring that procedures exist for Committee • Structure and composition of Board employees to raise concerns in confidence • Financial statements • Appointment of non-executive and is an integral element in its overall • Financial controls Directors remit. However, the Audit, Risk & • External audit • Succession planning and talent Assurance Committee is kept informed • Internal audit management of any allegations of fraud or poor financial • Risk management and assurance controls and internal audit participates in investigations into such claims and reports to that Committee on the outcome.

Directors’ independence At its Board meeting in March 2014, Read more on p55 Read more on p58 as part of its annual audit of corporate governance, the Board considered the Remuneration Committee Business Practices independence of the non-executive Committee Directors against the criteria specified • Remuneration strategy and policies in the Code and determined that each • Remuneration packages • Corporate values, ethics and Code of them continues to be independent. • Incentive plans of Conduct • Health and safety The Board • Stakeholder management The Board currently comprises 10 • Sustainability Directors, of whom seven, including • Whistleblowing the Chairman, are non-executive. • Community engagement Details of the changes during the year can be found under the heading “Board composition” below. Read more on p58 Read more on p60 Board composition The names of the Directors at the year Group Tender and Finance and General end are shown on pages 46 and 47 Investment Committee Purposes Committee together with brief biographical details. Full details of Directors’ service • Major contract approvals • Banking facilities and other agreements, emoluments and share • Acquisitions and disposals treasury matters interests are shown in the Remuneration • Capital expenditure • Share options Report starting on page 68. Belinda Richards and Bill Thomas were appointed as non-executive Directors on 1 September 2013. Ian Tyler, Hubertus Krossa and Mike Donovan retired from the Board on 31 March, 16 May and Read more on p61 Read more on p61 1 October respectively. Mr Tyler remained as an employee until 30 April 2013.

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Each of the Directors brings skills and Matters reserved for the Board objectives and review management experience which enhance the quality of The Board is collectively responsible for performance debate in the boardroom and provides the success of the Company and has a • setting the Company’s values and guidance. The Directors believe that the formal schedule of matters reserved for ethical standards Board continues to include an appropriate its decision which includes the matters balance of skills and retains the ability to summarised below: • approving policies and systems for provide effective leadership. Having said risk management and assurance. • determining the Group’s strategic this, there is a need to introduce further direction The Board reviewed its list of reserved sector specific experience amongst the matters, most recently, at its meeting in non-executive Directors and the Board • approving annual budgets and financial March 2014. The terms of reference of will be considering how it might best reporting, including the annual and the Board and the Board Committees are address this over the coming months. half-year results and interim available on request from the Company There are, however, areas where the management statements Secretary and are also displayed on the non-executive Directors, in particular, • approving interim, and recommending Company’s website. Descriptions of the bring with them a wealth of insight and, final, dividends specific responsibilities which have been although not exhaustive, some of delegated to the Chief Executive and to their most significant strengths are • approving major acquisitions, disposals the principal Board Committees are also highlighted below. and capital expenditure provided on page 50 and pages 55 to 61. • ensuring the necessary financial and Read more online in our Investors section human resources are in place to achieve

Board balance Board tenure Board geography Board diversity 1 Chairman 1 1 0–2 years 3 1 UK 8 1 Male 80 2 Executive Directors 3 2 2–4 years 1 2 Americas 2 2 Female 20 3 Non-executive Directors 6 3 4–6 years 4 4 6+ years 2

1 1 1 1 2

4 2 2

3 3

Non-executive Directors – significant strengths Operating Financial Strategic performance Mergers and Business management development and delivery acquisitions integration and planning Sector specific Robert Amen • • • • Iain Ferguson • • Maureen Kempston Darkes • • • Steve Marshall • • • • Belinda Richards • • • • • Graham Roberts • • • Bill Thomas • • • •

Experience of Risk international Health management Stakeholder Ethics, values markets and safety and assurance HR management engagement and culture Robert Amen • • Iain Ferguson • • • • Maureen Kempston Darkes • • • Steve Marshall • • • • Belinda Richards • • • Graham Roberts • • Bill Thomas •

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Directors’ Report CONTINUED

Chairman and Chief Executive • Objective setting for the senior Board meetings The two roles are complementary. management team Procedures for Board meetings remain The Chairman is responsible for managing largely unchanged from previous years. • Organisational structure, succession the business of the Board, whilst the The Company Secretary is responsible and talent management Chief Executive actually runs the for advising the Board on appropriate business. As the senior executive officer • Major capital expenditure prioritisation governance matters and for ensuring of the Company, the Chief Executive is and allocation of resources good information flow and that Board responsible to the Chairman and Board procedures are properly followed. He also • Consideration of acquisitions, disposals for directing and prioritising the profitable provides updates on legal matters of and financing operation and development of the Group. relevance to the Group and is available The Chairman and Chief Executive keep • Stakeholder management. to individual Directors for advice on each other appropriately informed on the Board procedures. Senior Independent Director other’s current activities. As Senior Independent Director, 2013 meeting programme Specifically, their roles comprise Iain Ferguson’s principal responsibilities In 2013, in part due to the difficult trading the principal responsibilities in the are to ensure that the views of the other conditions encountered in the early part of sections following: non-executive Directors are properly the year, the Board met on 13 occasions. considered and to provide an additional All these meetings, except one, were held Chairman’s responsibilities communication channel between the at the Company’s head office in London. • Ensuring effective strategic planning is non-executive Directors and the The Board also visited the headquarters undertaken by the executive Directors shareholders and other stakeholders, of Infrastructure Investments and • Ensuring corporate governance is as required. Mr Ferguson meets with the participated in a comprehensive briefing properly maintained other non-executive Directors without the on the case for disposal of hospital and Chairman or executive Directors being school PPP investments in 2013 and a • Formally appraising the performance present at least once a year. detailed consideration of the division’s of the Chief Executive and reviewing wider portfolio. with the Chief Executive his views Directors’ interests on the performance of the other No Director had any material interest in Each Board meeting normally lasts four executive Directors any contract of significance with the to five hours but can be longer. Group during the period under review. • Providing leadership to the Board On the evening preceding a Board The Directors have put in place meeting, the Directors generally meet for • Acting as senior ambassador for procedures to ensure the Board dinner and sometimes take the opportunity the Company collectively, and the Directors individually, to discuss predetermined developmental comply with the disclosure requirements • Considering Board balance, composition themes, led by one of the executive on conflicts of interest set out in the and succession Directors, other senior managers or a Companies Act 2006. At its meeting each specialist external speaker. For example, • Ensuring the smooth operation of the January, a formal declaration of interests in 2013, one of the themes focused on Board and its Committees is reviewed by the Board. investor relations. One of the dinners each • Providing effective communication The interests of Directors in the share year is attended by the Chairman and the between the Board and its shareholders. capital of the Company and its subsidiary non-executive Directors only, whilst a undertakings and their interests under second includes the Chief Executive, but Steve Marshall spends an average of the long term incentive scheme (the none of the other executive Directors. two days a week on Company business. Performance Share Plan), the Deferred The Board is satisfied that his role as Each Board meeting addresses key Bonus Plan, the Share Incentive Plan and non-executive chairman of two other strategic topics for the Group which share options are set out in the tables in companies, and his other business and enable the Directors to engage in detailed the Remuneration Report commencing charitable commitments, can be reviews. The Board also considers at each on page 68. accommodated without hindering his of its meetings monthly updates from the ability to carry out his duties as Chairman. Directors’ indemnities Chief Executive and the Chief Financial The Company grants an indemnity to all Officer. Regular reports are also provided Chief Executive’s responsibilities of its Directors to the extent permitted on health, safety and environment, • Strategy development and the by law. These indemnities are uncapped operational performance, corporate stewardship of physical, financial and in relation to losses and liabilities which communications, risk management and human resources Directors may incur to third parties in assurance, investor relations and any legal • Group operational and financial the course of acting as a Director of the issues. At each meeting, the chairs of the performance Company, or in any office where such various Board Committees provide a duties are performed at the request of the summary of the discussions held at the • Executive leadership Board, or as a result of their appointment preceding Committee meeting and the • Health, safety and environmental as Directors. key actions arising. performance • Corporate values and ethics

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2013 Board topics The following topics were also addressed by the Board during 2013 under each of the themes shown. For clarity, a synopsis of certain of the topics has been included as well. The Board specifically addressed the Chief Executive’s objectives for 2013 which identified those key tasks over and above his normal responsibilities, which include ensuring that the Group achieves its overall budget performance. This was of particular relevance in light of Andrew McNaughton’s promotion. Where appropriate, each of the objectives had identified milestones and each one was integral in moving the organisation forward along its stated path. Specific objectives included the development of the market sector structure and market entry strategies, the pursuit of the four principal efficiency projects across the replacing overhead powerlines Group, the disposal of the Mainland around the globe European rail business and the continued development and progress of the Zero Our international overhead line teams have been continuing to work on major Harm safety programme. projects in Australia and Hong Kong during 2013. In Australia, our joint venture with United Group Limited, has been undertaking a £60 million replacement As mentioned above, the Board met an of over 100km of overhead transmission line on behalf of Powerlink unprecedented 13 times during 2013 Queensland. In Hong Kong, our joint venture Gammon Construction is driven by: reinforcing, refurbishing and upgrading 500km of overhead transmission line • the operational delivery and financial to protect against typhoon weather conditions. Our dedicated training facility performance issues which had emerged in the Philippines has helped invest in the skills and expertise of local people. and culminated in the trading update in April Sustainability Profitable Markets balfourbeatty.com/power • the disposal of Balfour Beatty WorkPlace. After ensuring that suitable stabilisation measures had been put in place in Operational performance • Infrastructure fund – the infrastructure Construction Services UK where the • Health and safety – performance across fund enables the Group to utilise a issues had arisen, the Directors the Group and the status of the Zero combination of infrastructure asset concentrated on monitoring progress Harm programme knowledge, skills and experience to earn a superior return on capital, as well against the performance improvement • Efficiency programme – reviews of each as advisory fees. The Board received plan which had been drawn up by the of the four principal cost reduction and progress updates on how this business divisional management team. efficiency programmes and monitoring was progressing including information their progress against predetermined Finance on investments made in the year. • Budgets 2013 and 2014 measures and milestones HR • Business reviews – operating • Annual and half-year results including • Transition to new Chief Executive pre-close statements performance against budget and strategic plan, risks and opportunities • People planning, talent and succession • Dividend strategy and matters such as health and management – review of detailed • Financing capacity and options – future safety, people development and divisional management succession cash needs of the Group and approval sustainability, including: plans, the encouragement of cross- of both a US private placement and an −−International (Middle East, India, divisional and cross-geographical moves issue of convertible bonds in 2013 Brazil, Australia) and diversity and inclusion policies and −−Construction Services UK – practices across the Group, including • Trading updates. performance and plan of action associated action plans −−Construction Services US • Organisational structure −−Professional Services −−Rail • Pensions. −−Infrastructure Investments

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Directors’ Report CONTINUED

Strategy Mergers, acquisitions and divestments Risk • Group strategy development and • Acquisition reviews covering the period • Risk management review – Australia structuring options – development of from 2000 to 2012. This incorporated a and New Zealand. the business model to help differentiate detailed analysis of the Parsons For 2014, the Board is scheduled to meet and enable the organisation to operate Brinckerhoff acquisition in 2009 and eight times. One meeting will focus on as a connected services group as the crucially, the lessons learned from each the development of the strategic plan. most effective way to deliver greater of these acquisitions At least one meeting will be held outside value to our clients, to improve • Disposal of Balfour Beatty WorkPlace London at one of the Group’s business operating performance and cost units and one meeting will be held effectiveness and enhance shareholder • Approval of Infrastructure Investment overseas, most likely in the US, to link value. Consideration was given to the asset disposals in 2013: with our businesses in this geography. shape of the operating model and how −−Tameside and Salford Hospitals the Group might best develop the core −−Four Midlands-based schools projects UK and US markets and strengthen the −−Carlisle Northern Development business in other specific geographies Route and A30/A35 roads (partial equity disposal) • Rail strategy and business review. −−Exeter Airport.

2013 Board and Board Committee meetings Details of the number of meetings and attendance at the Board meetings and meetings of the Audit, Risk & Assurance, Business Practices, Nomination and Remuneration Committees during the year are set out in the following table:

Audit, Risk & Audit, Risk & Assurance Name of Director Board Assurance Sub-Committee Business Practices Nomination Remuneration Robert Amen 13 (13) 4 (4) 4 (4) 3 (3) 1 (1) Mike Donovan (to 1 October 2013) 9 (12) 3 (3) 3 (3) 2 (2) 0 (1) Iain Ferguson 11 (13) 2 (3) 1 (1) 3 (3) Maureen Kempston Darkes 11 (13) 3 (4) 3 (3) 1 (1) 0 (0) Hubertus Krossa (to 16 May 2013) 7 (8) 2 (2) 1 (1) 2 (2) Duncan Magrath 13 (13) Steve Marshall 12 (13) 3 (3) 1 (1) 3 (3) Andrew McNaughton 13 (13) 1 (1) Belinda Richards (from 1 September 2013) 2 (2) 1 (1) 1 (1) 1 (1) 0 (0) Graham Roberts 13 (13) 4 (4) 4 (4) 1 (1) 3 (3) Bill Thomas (from 1 September 2013) 2 (2) 1 (1) 1 (1) 1 (1) 0 (0) Ian Tyler (to 31 March 2013) 3 (3) Peter Zinkin 13 (13)

The number shown in brackets is the total number of meetings the Director could attend during the year (including as a result of changes to Committee memberships). Non-attendance at meetings was due to illness or prior business commitments. In each case, where the Directors have not been able to attend a Board or Committee meeting, they have reviewed the papers circulated for that meeting and provided their comments directly to the Chairman, or the Committee chair, as appropriate. Any Director who is not a Committee member has an open invitation to attend any Committee meeting and a number of the Directors took this opportunity during the year. For example, Messrs Marshall, Magrath and McNaughton each attended all the Audit, Risk & Assurance Committee meetings in 2013, including Sub-Committee meetings, whilst Mr Ferguson attended three Sub-Committee meetings. The Business Practices Committee was also attended on each occasion by Mr McNaughton. Further information about the work of each of the Board’s Committees may be found on pages 55 to 61.

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Board development During 2013, the non-executive Directors Owing to the increased Board meeting Induction visited three projects in the UK where they commitment in 2013, as well as additional Directors undertake a thorough induction received detailed briefings and met with meetings of the Audit, Risk & Assurance programme and receive a range of senior management and project personnel: Committee and separate business information about the Company when strategy working group sessions, the • power transmission project in Kent they join the Board, including access to number of visits organised for the (Canterbury–Sellinge overhead line the Board portal, which includes Balfour non-executive Directors was reduced. refurbishment scheme) Beatty’s Code of Conduct, processes In 2014, three visits are planned for for dealing in Balfour Beatty shares and • student accommodation the non-executive Directors which will Board procedures, as well as the minutes (King’s Cross, London) concentrate, as in previous years, on key and papers of past Board and Board • Crossrail (Whitechapel, London). strategic topics. The first visit has been Committee meetings. In addition, they organised and will focus on Construction also take part in a series of one-to-one Services UK. One of the three visits meetings with other members of the in 2014 will be to the US. Board and senior executives which include briefings on the Company’s business strategy, financial procedures, business development, legal and other key issues. In the case of Ms Richards and Mr Thomas, this process commenced immediately on their appointment on 1 September 2013 and was substantially completed by the end of the year. In addition to meeting the UK-based divisional CEOs, both non-executive Directors have met with the CEOs of Professional Services and Construction Services US in the UK. It is our intention to organise visits for both Ms Richards and Mr Thomas to the US in 2014, when any remaining segments of their induction programme will be completed. Professional development In discussion with the Directors and Company Secretary, each year the Chairman determines whether there are any specific training needs identified by the Directors, which can be addressed either by the topic being included at a future Board meeting or on a one-to-one basis. Directors are also enrolled in the Deloitte Academy, a seminar-led programme for directors of UK listed companies, which provides regular updates throughout the year on the principal governance and other matters of which directors of a listed company should be fully aware. The Directors’ induction programme also provides the foundation for continuing professional development. This takes place throughout the year by way of a using bim technology to deliver series of internal and external updates, a key central london location including visits to operating companies Our UK construction business was awarded a £87 million contract to to meet local management and visits to construct 260,000 square feet of new commercial and retail space Balfour Beatty projects, both in the UK across two eight storey blocks in central London. We are using 4D and overseas. Building Information Modelling (BIM) technology to mitigate potential risks and disruption to the public and other stakeholders.

Sustainability Environmental Limits balfourbeatty.com/stjames

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Directors’ Report CONTINUED

Board evaluation Performance management Allocation Introduction • Knowledge of corporate culture and • Balance of formal and informal time In keeping with the Code, the Board context • Provision of time for priorities receives external evaluations, normally • Assessment of executive motivation, • Balance of presentation and debate every three years, with internal performance and remuneration • Availability of induction and training evaluations in the intervening two years. • Quality of executive succession programmes. Prior to 2013, the last external evaluation planning and leadership development The conclusions reached were more was carried out in 2010. • Effectiveness of the Remuneration qualitative than quantitative and based on a Committee. For 2014, the evaluation will be conducted careful analysis of the Board’s approach to its using internal resources, the output from Board environment work, its contribution to the success of the which will be reported in 2015. Culture Company and its preparation for the future. During the review, evidence was garnered 2013 evaluation • Board culture, dynamics, values from in depth interviews with each of the The Board appointed Boardroom Review and conduct Directors and other senior management to conduct its evaluation in 2013. This was • Quality of debate and decision making personnel and from the observation of the conducted between January and March • Opportunity and ability to contribute, reviewer of the conduct of the Board and 2013 and the scope of the evaluation is individually and collectively Board Committees and the presentation shown below. • Balance of constructive challenge and support. of Board and Committee information. The work of the Board Composition The principal themes ensuing from the Strategy and operations • Board size, composition, tenure and evaluation in 2013 are set out below: • Understanding of the Board’s role independence • Quality of strategic process Strengths • Non-executive Director succession • Knowledge of operations and the • Individual contribution, current Board planning external landscape composition and strong chairmanship • Effectiveness of the Nomination • Consideration of stakeholder views, • Positive strategic outcomes and Committee including shareholders. thoughtful consideration of • Effectiveness of the Chairman, shareholders’ views Risk and control Committee chairs and Directors. • Historical financial reporting, the • Quality of financial information development of KPIs and effective The Board’s use of time • Efficacy of internal and external Audit, Risk & Assurance and Business Planning audit functions Practices Committees • Diligence of executive and non- • Effectiveness of the Audit, Risk & • Constructive executive culture, a executive Directors’ preparation Assurance Committee practical Remuneration Committee • Quality of information and the • Oversight of risk and effectiveness of and well conducted Chief Executive timeliness of papers the Business Practices Committee succession process • Schedule of Board and Committee • Interaction with advisers. • Thoughtful calendars, agenda and meetings Board support. • Quality of secretariat support.

However the following KEY areas of focus were identified for 2013 Evolution of The Board has been refreshed in 2013 with the recruitment of two new non-executive Directors, including Board culture a second female Director. Both the new non-executive Directors bring with them a proven track record in and future professional services, which will boost the Board’s overall sector specific experience. Further strengthening composition of the sector specific experience will be addressed during 2014. The appointment of the new Chief Executive in 2013 afforded a valuable opportunity to effect structural and cultural changes within the organisation. A strong relationship exists between the Chairman and the Chief Executive and there is a constructive level of non-executive Director oversight. Development In response to today’s rapidly changing environment and new business model, more time has and will be spent on of competitive competitors and clients. A re-definition of the Group’s value proposition has been included as part of the strategy benchmarking review. There has been greater challenge on the divisional landscape, market trends and expectations. The identification of better benchmarking processes and evolving client needs are both areas being pursued through 2014. Improvements The Chief Financial Officer and the Audit, Risk & Assurance Committee have worked hard to provide reliable to forecasting, historical financial reporting and the development of KPIs has been helpful. Through the work which has been the oversight undertaken in Construction Services UK, with management’s focus on both leading and lagging indicators, of risk and the forecasting has been high on the Board’s agenda and will continue to be so through 2014. internal audit The Audit, Risk & Assurance Committee has conducted a series of risk management “deep dives” across a function number of the divisions. There will be a continuing focus on developing robust processes that capture critical risks and provide perspectives from divisional executives on key and emerging risks, potential options and responses. The Committee has also undertaken a review of the long term development of the internal audit function, the conclusions of which are being implemented during 2014.

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Audit, Risk & Assurance Committee

• assess the independence, objectivity The Committee also received a and effectiveness of the external auditor presentation from the UK governmental and develop and implement policy on department responsible on the threats the engagement of the external auditor of cyber security and considered the to supply non-audit services proposals which had been made to mitigate against these risks. Messrs • review the integrity of the statement Marshall and Roberts also participated in the Annual Report on ‘fair, balanced in a survey on cyber security issued by and understandable’ required under the the UK Government. Companies Act 2006. Graham Roberts, a Fellow of the Institute Response to CSUK operational issues of Chartered Accountants and a former The Committee established a Sub- partner at Andersen and finance director Committee in May, chaired by Mr Roberts Meetings in 2013: 4, and comprising non-executive Directors, plus 4 Sub-Committee meetings of The British Land Company, has been identified by the Board as having recent to monitor and oversee the performance Members and relevant financial experience. Minutes of Construction Services UK and the plan • Graham Roberts – chair of Committee meetings are circulated of action which the divisional management • Robert Amen to all Board members. team had devised to deliver the required operational and financial performance in • Belinda Richards Partners from the external auditor, • Bill Thomas 2013. In addition, the Sub-Committee also the Heads of Group Risk Management reviewed the remit and structure of the Former members and Assurance and Internal Audit, and internal audit function including its annual (retired in the year) the Chief Financial Officer regularly plan. The Sub-Committee met on four • Mike Donovan attend each meeting. In addition, any separate occasions and received detailed • Hubertus Krossa independent non-executive Director briefings on each occasion from senior who is not a Committee member has an management in Construction Services UK. Responsibilities open invitation to attend meetings. The • Financial statements Committee also invites other executives Fair, balanced and understandable • Financial controls from within the Group to participate With the introduction of the Companies • External audit in Committee discussions. Act 2006 (Strategic Report and Directors’ • Internal audit Report) Regulations 2013, the Board has • Risk management and assurance Summary of activities in 2013 been particularly mindful of the need to In 2013, the Committee’s work provide a balanced and comprehensive programme focused on a number of analysis of the Company’s development significant issues and other accounting The terms of reference for the Committee and performance during the year and the judgements where the Committee are based on the Guidance on Audit position at the year end. The Audit, Risk believed the highest level of judgement Committees issued by the Financial & Assurance Committee has assisted was required and with the highest Reporting Council. The main responsibilities in achieving this objective by reviewing potential impact on the Group’s financial of the Audit, Risk & Assurance Committee proposals for the internal procedures to statements. Further information is set out are summarised below: be applied in preparing the Annual Report on page 56. The Committee’s standing and the verification process. The • monitor the integrity of the financial agenda items comprised reports on: Committee received a briefing on the statements of the Group and any formal • accounting, financial and regulatory approach proposed by management and announcements relating to the Group’s issues members received drafts of the Annual financial performance Report for comment earlier than had been • review of non-audit work carried out • review the Group’s internal controls the case in previous years, as have all the by the external auditors, and their fees established to identify, assess, manage Directors more generally. The content has and monitor risks, and receive reports • risk management activities also been shared at an earlier stage with from management on the effectiveness and compliance external auditors and other external of the systems they have established advisers in order that they can help • implementation of and progress against and the conclusions of any testing identify whether there are any material the Group assurance plan. carried out by the internal audit function inconsistencies between the strategic and external auditor The Committee thoroughly reviews these report, the other narrative sections and reports at each of its meetings and is able the financial statements. • monitor and review the effectiveness to question management at both Group of the internal audit function including and divisional levels to gain any further its work programme insight into the issues addressed in these • make recommendations to the Board reports. As well as the standing agenda in relation to the appointment of the items, the Committee also reviewed external auditor and approve the comprehensive papers on major litigation remuneration and terms of engagement and tax, in the latter case, approving how of the external auditor the Group’s tax strategy should evolve.

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Directors’ Report CONTINUED Audit, Risk & Assurance Committee CONTINUED

Significant issues and other accounting judgements In forming its view of the significant issues and accounting judgements for the year ended 31 December 2013, the Committee took into consideration the views of management and the external auditor through a combination of written reports and discussion. On page 55 attention is drawn to the action taken by the Committee following the trading update in April 2013 and the focus on Construction Services UK. In addition, the following significant issues and judgements were carefully considered:

Revenue and Given the nature of the Group’s operations these elements are central to how the Group values the work it has margin carried out. Having reviewed detailed reports and met with management, the Committee considered those recognition contract and commercial issues where there was exposure to both revenue and margin recognition risks. The Committee received a report from management showing the outcomes of earlier projects which enabled the Committee to gain an overall impression on whether management was being overly optimistic or pessimistic in its conclusions. As a key area of audit focus the Committee also received a detailed written report from the external auditor setting out the results of its work in relation to key contract judgements.

Carrying value The judgement largely relates to the assumptions underlying the value in use of the cash generating units, of goodwill primarily the achievement of the three year strategic plan and the macro economic assumptions (such as and other discount rates) underpinning the valuation process. The Committee received reports from management intangibles outlining the basis of the assumptions used. The strategic plan was approved by the Board. In addition, the external auditor provided detailed written reports to the Committee in this area. During the year, the Committee reviewed the impairment assessment of the European Rail businesses carried out by management and concluded that an impairment charge of £38m should be recorded in relation to Rail Germany.

Accounting for For a disposal, the Committee considers the judgement around whether a business should be treated as held acquisitions for sale and classified as a discontinued operation. In doing so it reviews management’s position and the Group and disposals strategy and evaluates the likelihood that the business will be disposed of within a 12 month period and whether it constitutes a separate major line of business. There were no acquisitions in 2013.

Going concern In order to satisfy itself that the Company has adequate resources to continue in operation for the foreseeable future and that there are no material uncertainties that could lead to significant doubt as to the Group’s ability to continue as a going concern, the Committee considered the Group’s cash position (both existing and projected), bank facilities and covenants (including bonding lines) and the borrowing powers allowed under the Company’s Articles of Association. The Committee subsequently recommended to the Board the adoption of the going concern statement for inclusion in the Annual Report.

Non- The key judgement is whether the items being considered relate to the underlying trading or not and whether underlying they have been presented in accordance with the Group’s accounting policy in this area. The Committee items conducted an in-depth review of each of the non-underlying items receiving written reports from management and the external auditor as to their quantum and nature. Specifically, the Committee reviewed the curtailment charge arising in the Balfour Beatty Pension Fund, the restructuring of a number of the Group’s businesses and the European Rail and Balfour Beatty WorkPlace disposals.

Provisions The Committee reviewed the significant judgements relating to provisions, including litigation and other risks. The Committee received detailed reports, including relevant legal advice.

Retirement The key judgement relates to the assumptions underlying the valuation of the retirement benefit obligation. benefits The Committee received reports from management outlining the assumptions used, including input from the Group’s actuaries, in particular in relation to discount rates, inflation and mortality which were evaluated against external benchmarks and, in relation to which, the external auditor also provided reports.

Deferred tax The Group’s strategic plan is reviewed together with considerations on future profitability to evaluate the assets judgement that it is probable the deferred tax assets are recoverable. Taking into account the past, the Committee has to assess how credible the future view of the business is through its strategic plan.

Directors’ The Committee assessed the methodology used to value the assets in terms of the discount rate applied. valuation of PPP It also critically appraised the output of the Directors’ valuation exercise. concessions

Areas of focus in 2014 In 2014, the Committee will continue to address the topics on its standing agenda and will also continue to undertake reviews of the risk management and assurance practices across the Group on a rolling programme. A fifth meeting will be organised specifically to focus on the risk management agenda itself. The Committee will also continue to receive training in order to broaden and refresh the skills and knowledge of its members.

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Risk management and internal control and level of authority required before Instrument 2008 made by the The Group’s risk management and internal the external auditor can be considered Professional Oversight Board of the control systems and processes were to undertake such services. Included Financial Reporting Council. subjected to close scrutiny following the within such analysis is consideration of External auditor rotation discovery of the operational delivery the cost and efficiency benefits as well Audit partners have been rotated every issues in Construction Services UK in as the real or perceived threats to five years. The advisory partner changed 2013. Further details on the review of auditor independence. in 2010 and the audit engagement the effectiveness of the system of risk There is no inconsistency between the partner changed in 2011. Deloitte’s management and internal control are Financial Reporting Council’s ethical first audit report for the Company was provided on pages 62 to 64. standards and the Company’s policy. completed in 2003 and there has not been a tender for external audit services in the Internal auditor effectiveness In 2013, the external auditor was intervening period. The Committee reviews the appointed to carry out various non-audit effectiveness of internal audit on an related work, including corporate finance A number of circumstances would lead ongoing basis. This is achieved, in part, services for reasons of commercial to consideration being given to carrying by reviewing and discussing the reports confidentiality and efficiency as well as out an audit tender review. For example: presented to it at each meeting setting tax advice and compliance services in • in circumstances where the external out the department’s work and findings, Australia, Europe, South Africa and the US. but also through a formal annual auditor’s performance had been called assessment. An independent periodic The Committee considers that the into question, or where, through the review of internal audit, as well as a Company receives particular benefits, audit partner rotation process, no thorough self-assessment scorecard including those relating to cost, quality and suitable replacement had been identified consistency, from the advice provided by drawn up in accordance with best practice • where value for money considerations its external auditor, given its wide and guidelines, also helps contribute to the had arisen Committee’s evaluation. detailed knowledge of the Group and its international operations. There can also • where there was a real or perceived External auditor independence be savings in management time and threat to independence and effectiveness accelerated delivery of work in situations • where conflict of interests had The Committee carries out a formal where rapid turnaround is required. The been identified review each year to assess the majority of non-audit related work (71% by independence and effectiveness of the value) was carried out using the services • where issues had been raised about external auditor, Deloitte LLP. The of major international audit firms other audit quality by a regulator. Committee has recommended that the than Deloitte. The UK Competition Commission’s Board proposes to shareholders that Annual assessment of the decision following its enquiry into the Deloitte LLP continues as the Company’s audit processes statutory audit market was published in external auditor, having satisfied itself In addition to receiving written reports October 2013. This will lead to FTSE 350 of Deloitte’s independence. In reaching from the auditors (both internal and companies having to put their statutory its conclusion, the Committee took into external) and management, the audit engagement out to tender not less consideration the following matters: Committee also conducted separate frequently than every 10 years. The UK Non-audit work private meetings with the auditors and Corporate Governance Code is also The objective set out in the Company’s with management. These provide the expected to be amended to reflect this policy is to ensure that the external auditor opportunity for open dialogue and decision by the Commission. With this is not placed in a position where its feedback on the audit process, the in mind, the existing lead engagement independence is, or might be seen to be, responsiveness of management and the partner’s final year of engagement, which compromised. Under no circumstances effectiveness of individual internal and commenced in 2011, will be for the year will any assignment be given to the external audit teams. ending 31 December 2015. For audit external auditor, when the result is that: relationships, where the last tender was A detailed assessment of the external before 1 January 2005, the audit should • as part of the statutory audit, it audit process and the effectiveness of be put out to tender within two years is required to report directly on the external auditor, together with any of the end of the current audit partner’s non-audit work identified improvement recommendations five-year engagement period. On this is prepared each year. Each division and • it makes management decisions basis, the Group audit would need to operating company within the Group is on behalf of the Group be put out to tender by the end of 2017. required to evaluate the performance of • it acts as advocate for the Group the assigned external audit team and to However, the Committee’s current compare that performance against the intention is to tender the audit earlier than • the level of non-audit fees is such, previous year. formally required so as to coincide with relative to audit fees, as to raise the last year of the current audit partner’s concerns about its ability to form The external auditor’s annual transparency engagement. The tender process itself objective judgements. report for the year ended 31 May 2013 would then take place during the second was reviewed. This was prepared in The Company’s policy identifies the half of 2015 for approval at the 2016 AGM accordance with the provisions of the various types of non-audit services and and would be effective for the year ending Statutory Auditors (Transparency) determines the analysis to be undertaken 31 December 2016.

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Directors’ Report CONTINUED Nomination Remuneration Committee Committee

Summary of activities in 2013 In 2013, the Committee’s work programme entailed recommending to the Board the appointment of two new non-executive Directors in place of the retiring Hubertus Krossa and Mike Donovan as non-executive Directors. In seeking suitable candidates for the non-executive Director vacancies, Korn Ferry, an external executive search agency, was engaged. The Committee identified the competences sought and Meetings in 2013: 1 the required experience, and the agency Meetings in 2013: 3 prepared a shortlist of potential candidates Members who were interviewed by members of the Members • Steve Marshall – chair Committee and by the executive Directors. • Iain Ferguson – chair • Robert Amen • Maureen Kempston Darkes • Iain Ferguson Key determinants in the selection of • Steve Marshall • Maureen Kempston Darkes Belinda Richards and Bill Thomas were • Graham Roberts • Andrew McNaughton the enormous strengths they would bring • Belinda Richards in change management and B2B client Former members • Graham Roberts focus whilst also having significant (retired in the year) • Bill Thomas experience in building businesses • Hubertus Krossa in an international and professional Former members services environment. Responsibilities (retired in the year) • Remuneration strategy and policies • Mike Donovan The executive search agency appointed • Remuneration packages • Hubertus Krossa for the recruitment of the non-executive • Incentive plans • Ian Tyler Directors has no other connections with Balfour Beatty. Responsibilities • Structure and composition of Board Areas of focus in 2014 • Appointment of non-executive In 2014, the Committee will monitor the Directors appropriateness of the composition of • Succession planning and talent the Board and make recommendations management concerning the need for the introduction of non-executive Directors to refresh the Board. It is accepted that enhancing the sector specific experience of the non-executive Directors, which commenced in 2013, should be continued. The implications of the business strategy on senior executive recruitment and the impact on the Group’s succession planning are also areas which the Ensuring the current Committee will keep under review during the year. remuneration policy and Succession planning the appropriateness of across the Group and the short and long term the composition of the incentive arrangements Board specifically will properly meet the needs be the key areas of of the organisation, focus in 2014. remains high on the Committee’s agenda.

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Summary of activities in 2013 A consultation exercise was undertaken Further information about the work of the In 2013, the Committee’s work with major shareholders which culminated Committee during the financial year is set programme comprised the following with their broad agreement of the out in the Remuneration Report starting principal topics: proposals, further details of which are on page 68. included in the Remuneration Report Bonus payments on pages 68 to 84. Areas of focus in 2014 In common with previous years, the In 2014, the Remuneration Committee Committee determined that it would be The Committee also reflected on the will undertake a formal review of the appropriate to take into account certain “cap and collar” restriction applied to PPP existing remuneration policy and the other matters in assessing profit before asset disposals (+/-20% of budgeted sales appropriateness of the short and long tax (PBT), namely: (i) the impact of value) and agreed to include an additional term incentive arrangements to properly acquisitions and disposals (ii) the allowance which could be attributed for meet the needs of the Company, as it application of a constant exchange rate bonus calculation purposes. implements the next phase of its business and (iii) the impact of PPP asset disposals. The Committee approved, after strategy. If changes are considered 2012 annual bonus payment date consultation with major shareholders, necessary, the Committee will consult The Committee sought views on the a special incentive for the Chief Financial with shareholders ahead of the AGM practices of other companies in response Officer (CFO) under the PSP, details of in 2015. to the reduction in the top rate of income which are included in the Remuneration Remuneration Report p68 tax from 6 April 2013. The Committee Report on page 79. Performance concluded that no deferral of the 2012 conditions were set. The reason for the annual bonus was justified. The release special incentive award was to recognise date of maturing share awards under the the work which the CFO would undertake Deferred Bonus Plan was maintained in 2013 in relation to cost control, asset at the normal maturity date. disposals and the change to the business mix, whilst working alongside the new 2010 PSP performance conditions Chief Executive. The EPS growth calculation was below the minimum level of achievement and Executive Directors’ salary review the TSR measure showed Balfour Beatty The Committee did not sanction any at a position between 11 and 12 when salary increases in 2013 for the executive compared against the remaining 21 peer Directors, other than in relation to companies, which meant there would be Mr McNaughton, who was appointed no vesting of the 2010 Performance Share Chief Executive on 31 March. Plan (PSP) awards. The Committee Remuneration policy and long term required a consistent approach to be incentive plan review applied when calculating TSR and, The Committee decided not to embark because of the proximity to the median on a remuneration policy and long term level, commissioned an external review by incentive review in 2013, preferring the Committee’s remuneration advisers, instead to maintain for the executive to ensure the components of the TSR Directors the two TSR measures for calculation were appropriate and being the PSP in 2014. applied correctly. 2013 AGM and BIS reporting 2013 annual bonus and PSP structure requirements and targets The Committee had reflected on the The Committee considered the proposals significantly lower vote in favour of the which had emerged following discussions Remuneration Report at the AGM in 2013, between the Committee chair and the which it concluded could be attributed Committee’s remuneration advisers largely to investors’ concerns around the concerning possible changes to the financial performance of the Group structure of the annual bonus and long following the operational issues in term incentive plan (PSP), whilst the Construction Services UK, rather than organisation was in transition, and as specific issues with the remuneration management moved forward with the policy, which had only recently been implementation of the new business reviewed by major shareholders. As part strategy. Minor changes to the of the new UK Department for Business, remuneration policy emerged as a Innovation & Skills (BIS) reporting consequence of applying certain requirements, the Committee also adjustments to the performance metrics undertook a detailed analysis of the for the annual bonus and the PSP, structure and content of the 2012 including the adoption of TSR only Remuneration Report to understand the measures for PSP awards made in 2013. scale of any changes required in 2013 to satisfy the new BIS reporting requirements.

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Directors’ Report CONTINUED Business Practices Committee

Summary of activities in 2013 and compliance programme had become The Committee focuses significant well embedded across the organisation, attention on health and safety, values, the Committee emphasised that work ethics and compliance and sustainability. would still need to be done to similarly The Committee also addresses the embed the Code and processes in joint Group’s Code of Conduct and the training ventures. Progress would be monitored which ensures that the Group’s business through 2014. principles are properly embedded A series of investigations into throughout the business. The Committee whistleblowing claims had been carried also has responsibility for reviewing out through 2013 which were reviewed contract commission arrangements. by the Committee. The external monitor’s In addition to the standing agenda items, report on Parsons Brinckerhoff’s own Meetings in 2013: 3 the following principal topics were compliance programme was thoroughly considered at Committee meetings during reviewed and the Committee noted Members the year. the aim to continue to strengthen this • Maureen Kempston Darkes – chair programme. The Committee will keep Health and safety • Robert Amen progress under observation. • Iain Ferguson The Committee reviewed the annual • Steve Marshall independent audit regime comparing The self-assessment ethics and • Belinda Richards Balfour Beatty against its industry compliance dashboard, which would • Bill Thomas peers. This focuses on health and safety form an integral element of the year-end performance by sector and by geography compliance reports, was reviewed. Former members and provides a truer comparator The 2013 action plan was monitored. (retired in the year) of performance than a broad The strengthening of the ethics and • Mike Donovan – chair benchmarking index. • Hubertus Krossa compliance programme in emerging On the Zero Harm programme, the territories will feature on the Committee’s Responsibilities emphasis has moved away from risk agenda in 2014. This will be carried out in • Corporate values, ethics and mitigation to one of prevention. The conjunction with the values programme Code of Conduct Committee did not focus on lagging with the intention of embedding the • Health and safety indicators but on a series of leading Code of Conduct requirements within • Stakeholder management indicators aimed at driving cultural change each of the businesses in these • Sustainability throughout the organisation. The emerging territories. Committee acknowledged that difficulties • Whistleblowing People arose because of the temporary nature of • Community engagement The Committee completed a review of many of the work sites with contractors the Group diversity strategy and action on site for short periods and with high plans and the current positioning in turnover rates. The Committee monitored relation to gender diversity across the the programme and milestones which workforce. The Committee will continue had been set. to monitor progress in 2014 against the The Committee considered fatality measurements which have been identified reviews, discussing in detail the emerging and formally incorporated into the themes around supervision, Sustainability Roadmap. The Committee communications and remote working. will also be keen to see how the diversity and inclusion programme is being The Global Safety Principles were expanded in 2014 to incorporate wider reviewed by the Committee in conjunction This Committee is diversity including race, disability and age. with management. Gap analyses had evolving. As well as its been conducted for each business unit Areas of focus in 2014 reputational risk and a heat map prepared. Action plans will In 2014, the Committee will continue responsibilities, 2014 will continue to be reviewed by the Committee. to focus on the key reputational risk also see its scope widen The Zero Harm Roadmap will be kept areas of health and safety, ethics and to include other business under review during 2014 so that the compliance, and sustainability and will Committee can monitor progress against monitor progress against the various practice areas. the plan and a mid-year assessment will action plans under each category be conducted. referenced above. The Committee will also work with management on other Ethics, values and compliance business practice areas which have a The Committee conducted a review of meaningful impact on the future success the compliance officer function across of the Group, including supply chain and the Group and risk assessment and client relationship management. enforcement regimes. Although the Code of Conduct and the accompanying ethics

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Group Tender and Finance and General Investment Committee Purposes Committee

The Committee is chaired by the Chief Meetings in 2013: Numerous Executive, or in his absence by the Chief Financial Officer. Its main purpose is to Members review all major proposed tenders with • Andrew McNaughton – chair projected values above specified levels. • Duncan Magrath The Committee also has authority to • Peter Zinkin approve capital expenditure applications and any proposed acquisitions or Former member disposals up to certain specified limits (retired in the year) determined by the Board. For example, • Ian Tyler – chair currently the Committee’s terms of reference require contracts for Responsibilities • Banking facilities and other treasury Meetings in 2013: Numerous construction or services in the UK of a value exceeding £100 million to be matters Members submitted for review, whilst other limits • Share options • Andrew McNaughton – chair vary according to geography and nature • Duncan Magrath of the contract. Any Director may convene The Committee is chaired by the Chief • Peter Zinkin a meeting of the Committee to discuss Executive, or in his absence by one of • Kevin Craven any of the tender reviews in more detail. the other executive Directors. Its principal • Nick Flew An audit was carried out this year on how purpose is to approve various routine • Mark Layman robustly the appraisal processes were banking and treasury matters, grants and • Sandip Mahajan being applied within selected divisions on exercises of employee share options and • John Moore projects which did not normally require other matters relating to share capital. • Brian Osborne prior Committee approval. Whilst minor A summary of the business conducted at • George Pierson adjustments were recommended the meetings is provided to all Directors. • Nick Pollard following the reviews, the overall appraisal • Ian Rylatt processes undertaken by those divisions • Steve Tarr were judged by management to be both • Chris Vaughan comprehensive and robust. Former members Minutes of Committee meetings are (retired in the year) made available to all Directors. • Ian Tyler – chair • Manfred Leger • Mike Peasland • Robert Van Cleave

Responsibilities • Major contract approvals • Acquisitions and disposals • Capital expenditure

The Committee will continue to ensure internal approval processes are appropriate for major projects and capital expenditure.

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Directors’ Report CONTINUED

Risk management and internal control Risk management Effective risk management underpins the delivery of our objectives. It is essential to protecting our reputation and generating sustainable shareholder value. We aim to identify key risks at an early stage and develop actions to eliminate them or mitigate their impact and likelihood to an acceptable level. For more information refer to pages 20 to 23. Risk management processes are embedded throughout the Group at all levels and form an integral part of day-to-day business activity. They help management to identify and understand the risks they face in delivering business objectives and the status of the key controls in place for managing those risks. Roles and responsibilities The Board is responsible for our system of risk management and internal control. It sets the Group’s appetite for risk in pursuit of its strategic objectives, and the level of risk that can be taken by Group, divisional and business unit management without specific Board approval. Group policies and delegated authority levels set by the Board provide the means by which risks are reviewed and escalated to the appropriate level within the Group, up to and including the Board, for consideration and approval. The roles and responsibilities of the Board, its Committees, and divisional and business unit management are set out below.

Responsibilities Actions undertaken

1. Board • Responsible for the Group’s systems of • Issues and reviews Group risk risk management and internal control management policy • Determines Group appetite for risk in • Annually reviews effectiveness of Group risk achieving its strategic objectives management and internal control systems • Reviews the Group’s key risks and risk responses

Audit, Risk & Assurance • Regularly reviews the effectiveness of Group • Receives regular reports on internal and Committee internal controls, including systems to external audit and other assurance activities identify, assess, manage and monitor risks • Annually assesses Group risk management and internal control systems

Business Practices • Reviews Group management of non-financial • Receives regular reports on implementation Committee risks such as health and safety, sustainability, of Group policies and procedures on employee engagement, values, ethics non‑financial risks and compliance • Reviews effectiveness of the Group’s helpline and other channels for raising concerns about Code of Conduct breaches

Group Tender and • Reviews and approves tenders and • Critically appraises significant tender Investment Committee investments, triggered by certain financial proposals and investment/divestment thresholds or other risk factors opportunities, with a specific focus on risk

2. Group management • Strategic leadership • Strategic plan and annual budget process • Responsible for ensuring that the Group’s • Reviews risk management and assurance risk management policy is implemented activities and processes and embedded • Monthly/quarterly finance and • Ensures appropriate actions are taken to performance reviews manage strategic risks and other key risks

3. Divisional • Responsible for risk management and internal • Reviews key risks and mitigation management control systems within their division plans monthly • Ensures that business units’ responsibilities • Reviews and challenges business unit are discharged assurance plans • Reviews results of assurance activities • Escalates key risks to Group management and the Board

4. Business unit • Maintains an effective system of risk • Maintains and regularly reviews project, management management and internal control within their functional and strategic risk registers business unit and projects • Reviews mitigation plans • Plans, executes and reports on assurance activities

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Risk management process Such an approach is underpinned by • a paper prepared by management on Our risk management policy requires that our Group values and carefully balanced the nature, extent and mitigation of all divisions and those business units incentives. Examples of this approach significant risks and on the systems within them identify and assess the risks are our health and safety, commercial of internal controls. to which they are exposed and which management, procurement, Central to the Group’s systems of internal could impact their ability to deliver their, financial control and ethics and control are its processes and framework and the Group’s, objectives. compliance programmes. for risk management. These align with Identified risk events, their causes and Reporting structures ensure that risks are the Turnbull Guidance on internal controls possible consequences are recorded in monitored continually, mitigation plans are and were in place throughout 2013 and risk registers. Their likelihood and potential reviewed and significant exposures are up to the date of signing this report. business impact and the control systems escalated – from project level to business The Group’s systems of internal control that are in place to manage them are unit management to divisional and Group operate through a number of different analysed and, if required, additional senior management. processes, some of which are interlinked. actions are developed and put in place to All divisions and business units must These include: mitigate or eliminate unwanted exposures. have assurance mechanisms to ensure Individuals are allocated responsibility for • a clear system of delegated authorities that their internal controls and actions evaluating and managing these risks to from the Board to management with designed to mitigate and eliminate risks an agreed timescale. certain matters reserved by the Board are operating effectively. A range of Risk registers and relevant action plans procedures is used to monitor the • the annual review of the strategy and are regularly reviewed, at various levels effectiveness of internal controls, plans of each division and of the Group throughout the business, to identify including management assurance, risk as a whole in order to identify the risks emerging risks, remove expired risks management processes and independent to the Group’s achievement of its overall and update mitigation plans. assurance provided by internal audit objectives and, where appropriate, any and other specialist third party reviews. relevant mitigating actions The Group sets its risk appetite by calibrating its delegations of authority and Internal control • monthly financial reporting against the triggers for matters requiring Group The Group’s systems and controls are budgets and the review of results and senior management or Board approval. designed to ensure that the Group’s forecasts by executive Directors and In relation to bidding, this means that exposure to significant risk is managed management, including particular areas projects above a certain value, with properly, but the Board recognises that of business or project risk. This is used certain features or that import certain any system of internal control is designed to update management’s understanding risks, or a move into new markets or to manage rather than eliminate the risk of the environment in which the Group work types, require approval by the of failure to achieve business objectives operates and the methods used to Group Tender and Investment Committee. and can only provide reasonable and mitigate and control the risks identified Divisions have a delegated level of not absolute assurance against material • individual tender and project review authority as well as their own approval misstatement or loss. In addition, not all procedures starting at the business unit and risk management committees the material joint ventures in which the and progressing to divisional and Board and triggers. Group is involved are treated, for these Committee levels if value, or perceived purposes, as part of the Group. Where In addition to the delegation of authority exposure, exceeds certain thresholds they are not, systems of internal control and approval controls mentioned above, and risk management are applied as • regular reporting, monitoring and review and the mitigations listed in the table of agreed between the partners to the of the effectiveness of health, safety Principal Risks on pages 20 to 23, where joint venture. and environmental processes. These possible we take a programmatic or processes are subject to independent management system approach to risks, The Board continued to assess the audit and certification to internationally which typically involves the following effectiveness of the risk management recognised standards elements (or equivalent): processes and internal controls during 2013 and to the date of this report. Such • the review and authorisation of • strong leadership and accountabilities assessment is based on reports made to proposed investment, divestment and • risk assessment the Board, the Audit, Risk & Assurance capital expenditure through the Board’s Committee and the Business Practices Committees and the Board itself • clear policies Committee, including: • specific policies set out in the Group • education, training and communications • the results of internal audit’s reviews Finance Manual covering the financial • appropriate procedures and controls of internal financial controls management of the Group, including arrangements with the Group’s bankers • monitoring, auditing and continual • a Group wide certification that and bond providers, controls on foreign improvement. effective internal controls had been exchange dealings and management maintained or, where any significant of currency and interest rate exposures, non-compliance or breakdown had insurance, capital expenditure occurred with or without loss, that procedures, application of accounting appropriate remedial action has been policies and financial controls or is being taken

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Directors’ Report CONTINUED

was expected to deliver significantly Results and dividends lower profits from operations than The results for the year are shown in the management’s expectations at the time audited financial statements presented of the full-year results announcement on pages 85 to 157 and are explained in March 2013. more fully in the Chief Executive’s Report, the Chief Financial Officer’s Review and As part of its review of the effectiveness the Performance Review. An interim 8.5p of the system of risk management and dividend payment of 5.6p (net) per final dividend (net) per internal control, the Board has taken ordinary share was approved by the ordinary share into account the events reported in the Board on 13 August 2013 and a final trading update of 29 April and the control dividend of 8.5p (net) per ordinary share enhancements that were adjudged to will be recommended at the Annual be necessary as a result. General Meeting, giving a total of 14.1p Actions taken to address these (net) per ordinary share, which compares issues included: with a total dividend per ordinary share of 14.1p (net) for 2012. Preference dividends • legal compliance risks which are • the appointment of a new CEO of totalling 10.75p (gross) per preference addressed through specific policies Construction Services UK share were paid in 2013 (2012: 10.75p and training on such matters as ethics, • an action plan to improve standards in (gross) per preference share). competition and data protection laws key disciplines such as planning, cost The Directors continued to offer the • a Group wide risk management estimating and commercial governance dividend reinvestment plan, which allows framework which is embedded • the enhancement of risk management holders of ordinary shares to reinvest their throughout the Group. Under it, key processes to provide greater assurance cash dividends in the Company’s shares risks are identified and assessed and that risks such as those which had through a specially arranged share action plans are developed to mitigate materialised in Construction Services UK dealing service. or eliminate unwanted exposures. are better understood and addressed. The results of these reviews are placed Innovation, research and development on risk registers and are subject to In May 2013, a Sub-Committee of the Increasingly we are working in long term regular review, with material risks Audit, Risk & Assurance Committee was relationships with our clients and innovation being escalated as appropriate appointed to monitor the progress of plays an important role in building those these actions and the wider performance relationships and creating additional value • reviews and tests by the internal audit of the UK construction services business. for our clients. Our ability to innovate is function of critical business financial This Sub-Committee met four times therefore essential to our sustainability. processes and controls and specific during the year. reviews in areas of perceived high Most of that innovation emanates from business risk The Board has considered the progress collaboration, with our clients, supply that has been made in implementing chain and by means of internal • the Group’s ethics helpline and other the control enhancements considered collaboration across our businesses. For channels by which staff are encouraged necessary in the UK construction services example, we have developed a pipeline to raise concerns, in confidence, about business, and confirms that it is satisfied inspection camera for use in live water possible breaches of the Code of that the necessary actions have been and gas mains with technology specialist Conduct, improprieties on matters of taken or are being taken to rectify any JD7. We participated in the development financial reporting and other issues. control weaknesses or failures. of a new sleeper system for London These systems are extended, as soon Underground with the client and two Principal risks as possible and as appropriate, to all manufacturers with the result that track The principal risks that could adversely businesses joining the Group. renewal productivity has more than impact our profitability and ability to doubled. A collaboration on the M25 Each of the divisional CEOs is responsible achieve strategic objectives are set out widening scheme involving some 10 for ensuring that a comprehensive on pages 20 to 23. partner organisations has resulted in the framework of assurance (including internal development of a rapid cure concrete that audit) exists within their division and Other disclosures has reduced lane occupation times during business units which is in accordance Business and financial review maintenance by 80%. with Group requirements. The Chairman’s Review on page 1 and the Chief Executive’s Report on pages 4 and Our innovations are informed by research During the year, a difficult external 5, the Strategy Review on pages 10 to 19, work at several academic partner environment combined with internal Chief Financial Officer’s Review on organisations, including Salford University reorganisation resulted in poor operational pages 24 to 27, the Performance Review (BIM), Bristol University (systems delivery in the UK regional construction on pages 28 to 35, and The Way We Work engineering) and Pennsylvania State business and, to a lesser extent, the on pages 38 to 43 are incorporated by University (building energy performance). building part of the UK major projects reference into the Directors’ Report. We sponsor three engineering doctorate business. These factors led to a trading students at Bristol in conjunction with the update being issued on 29 April, which Engineering and Physical Sciences disclosed that Construction Services UK Research Council (EPSRC).

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Our ability to collaborate has been between holders of the Company’s place during the year in Australia, enhanced by the growth in communities shares that may result in restrictions on Asia and the US. of practice, particularly those that involve the transfer of shares or on voting rights. Separately, the Chairman held three participation from both our construction No person has special rights of control meetings with major investors and five and professional services businesses, by over the Company’s share capital and all further meetings were held with major the deployment of training in collaborative issued shares are fully paid. shareholders by senior executives as part working practices and through our of our ongoing engagement. ongoing Group wide accreditation to As at 31 December 2013, the Company the standard BS11000 Collaborative had been notified in accordance with the We will maintain this communication Business Relationships. Disclosure and Transparency Rules of the programme and expand it where Financial Conduct Authority of the following appropriate, subject to the constraints of Share capital and shareholders interests in its ordinary share capital: regulation and practice. The 2014 investor Details of the share capital of the Company programme will focus on ensuring our as at 31 December 2013, including the Number Percentage investors and the analyst community rights attaching to each class of share, are of ordinary of ordinary shares held shares held understand the Group, its operations and set out in Note 29 on pages 135 and 136. Causeway Capital strategy, and that international institutions During the year ended 31 December 2013 Management LLC 35,275,099 5.12 continue to be given the opportunity no ordinary or preference shares were Prudential plc 35,103,707 5.10 to meet with management. repurchased for cancellation. 386,386 Standard Life Care is exercised to ensure that any ordinary shares were issued following Investments price sensitive information is released the exercise of options held under the Limited 25,104,162 3.65 Company’s savings-related share option to all shareholders at the same time scheme and 270,895 ordinary shares Since 1 January 2014, the Company has in accordance with UK Listing were issued following the exercise of received a further notification advising Authority requirements. options held under the Company’s that Causeway Capital Management Executive Directors report regularly to the executive share option scheme. LLC’s interest is now 4.87% and that Board on meetings or other contact with At 31 December 2013, the Directors had Newton Investment Management Ltd shareholders or their representatives. authority under shareholders’ resolutions has an interest of 5.16%. The non-executive Directors continue to believe that, through their direct and ready approved at the AGM and at the Class Auditor access to, and contact with, the Chairman Meeting of preference shareholders held Deloitte LLP has indicated its willingness and the Senior Independent Director and in May 2013 to purchase through the to continue as auditor to the Company and through the regular reports to the Board, market 68,848,254 ordinary shares and a resolution for its reappointment will be they are kept fully aware of the views of 16,775,968 preference shares at prices proposed at the AGM. set out in those resolutions. This authority the larger shareholders in the Company expires at the earlier of the conclusion Relations with shareholders and the investment community generally. of the Class Meeting of preference The Board attaches great importance The Board continues to retain the services shareholders which will follow the 2014 to maintaining good relationships with of independent external corporate and AGM or on 1 July 2014. all shareholders and ensures that investor relations consultants who provide Throughout the year, all the Company’s shareholders are kept informed of advice on the relationship between the issued share capital was publicly listed on significant Company developments. Company and its institutional investors. the London Stock Exchange and it remains The Company continued its programme of The Board regards the Company’s so as at the date of this report. There are communication with institutional investors general meetings as an opportunity no specific restrictions on the size of a and sell side analysts throughout 2013. to communicate directly with private shareholding nor on the transfer of shares, Presentations of the half-year and full-year investors and actively encourages which are both governed by the Articles results were made in accordance with participative dialogue with all the of Association and the prevailing law. The the practice of previous years, and Company’s shareholders. The chairs of Directors are not aware of any agreements teleconferences have been held for the Board Committees attend the AGM Interim Management Statements. each year along with the other Directors Through the year, 172 one-on-one and and are available to answer questions group meetings were held at regular from shareholders. intervals with institutional shareholders The website is regarded by the Company 172 (2012: approximately 185). Current and as an important source of information one-on-one and group prospective shareholders, brokers and on the Group, including financial press meetings were held at analysts were also given the opportunity releases, shareholder documentation, regular intervals with to engage with Balfour Beatty during annual and half-year results presentations institutional shareholders hosted roadshows in London, Scotland, and the terms of reference of the principal North America and Europe. Balfour Beatty Board Committees. We continue to also presented at an investor conference. develop the Company’s website to ensure In addition, our international management it remains a principal source of information teams met with some of our largest on the Group and its activities. shareholders, with meetings taking Read more online

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Directors’ Report CONTINUED

Political donations • to ensure that all job applicants receive At the AGM held on 16 May 2013, fair treatment, regardless of age, origin, shareholders gave authority for the gender, disability, sexual orientation, Company and its UK subsidiaries to make marital status, religion or belief donations to political organisations up to a • to ensure that all employees similarly maximum aggregate amount of £25,000 receive fair treatment throughout in the European Union. This approval is 12% their career a precautionary measure in view of the reduction in broad definition of these terms in the • to provide a working environment of carbon intensity Companies Act. No such expenditure or respect and free from harassment. donations were made during the year and Balfour Beatty strives to provide shareholder authority will be sought again employment, training and development at the 2014 AGM. opportunities for disabled people In the US and Canada, donations totalling wherever possible. We are committed £165,692 were made by business units to supporting employees who become during 2013 (2012: £371,000). Most of Greenhouse gas emissions disabled during employment and helping these donations were made by Parsons Details of our emissions during the year disabled employees make the best use Brinckerhoff; they were small and all were and the actions which the Group is taking of their skills and potential, consistent permitted by law. They are non-partisan to reduce them are set out on pages 41 with all other employees. and, in the main, they relate to support and 42 and form part of the Directors’ The Company also operates all employee given for local campaigns, public bond or Report disclosures. and executive share schemes in the UK, similar referenda to promote investment further details of which are included in in infrastructure. Any political contributions Employment the Remuneration Report. or donations are tightly controlled and The Balfour Beatty Group operates across must be approved in advance in a broad spectrum of geographies and end In the case of the Share Incentive Plan accordance with the Company’s internal markets. In order that we can best serve (SIP), participants are invited by the SIP procedures and must also adhere strictly our customers across such a complex Trustee to indicate their voting preferences to the Company’s policies on probity set and diverse business environment and on resolutions submitted to shareholder out in its Code of Conduct. A review of remain agile to its ever-changing demands meetings and the SIP Trustee will vote existing practices was undertaken during and challenges, we actively promote a its holding in accordance with those 2013 and no changes to these practices decentralised management structure to instructions. Shares held by the Balfour were considered necessary. ensure client centricity, speed of decision Beatty Employee Share Ownership Trust making and consistent operational are not voted. Parsons Brinckerhoff Group Inc sponsors excellence. However, parallel with this a Political Action Committee (PAC). decentralised approach, there are key Information concerning the performance A PAC is an independently administered principles in the design and practice of of the Group and the Company’s share committee which receives small voluntary employment policy that are applicable price is provided to all employees via the contributions from Parsons Brinckerhoff’s across the Group. These are: Group intranet, 360, and through the US employees and allocates the funds corporate website. received to US political candidates and • to provide a safe, open, inclusive and other eligible stakeholders who support challenging environment that attracts Employee diversity investment in infrastructure markets and retains the best people Information concerning employee diversity is set out on page 40 and forms generally. Contributions are entirely • to enable all employees to perform at part of the Directors’ Report disclosures. voluntary from employees and are kept their best and realise their full potential, completely separate from company assisted by the appropriate training and Events after the reporting date funds. Decisions taken by the PAC are career development Details of events after the reporting date independent of influence by Balfour are set out in Note 37 on page 144. Beatty. Total PAC contributions in 2013 • to communicate the strategy of the Group, the objectives of each respective were £83,981 (2012: £88,019). Change of control provisions business and the role and objectives The Group’s bank facility agreements Corporate responsibility of each employee within that business contain provisions that, on 30 days’ A full description of our approach to • to actively consult with all employees notice being given to the Group, the sustainability, including information on and engage in a participating lender may exercise its discretion to the Group’s community engagement environment that fosters the exchange require prepayment of the loans on a programme, appears on page 43. of best practice, collaboration and change of control of the Company and The Group’s published policies on health Group cohesion of purpose cancel all commitments under the and safety, the environment, business agreement concerned. • to provide market competitive pay conduct and ethics remain in place and and benefits that reward both individual are subject to regular reviews. and collective performance

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A number of significant joint venture IAS Regulation and they have also chosen • the Strategic Report includes a fair and contract bond agreements include to prepare the parent company financial review of the development and provisions which become exercisable by statements under IFRS as adopted by the performance of the business and a counterparty on a change of control EU. Under company law, the Directors the position of the Company and of the Company. These include the right must not approve the financial statements the undertakings included in the of a counterparty to request additional unless they are satisfied that they give consolidation taken as a whole, security and to terminate an agreement. a true and fair view of the state of affairs together with a description of the of the Company and of the profit or principal risks and uncertainties The Group’s US private placement loss of the Company for that period. they face. arrangements require the Company, In preparing these financial statements, promptly upon becoming aware that a In light of the work undertaken by the International Accounting Standard 1 change of control of the Company has Audit, Risk & Assurance Committee requires that Directors: occurred (and in any event within 10 reported in greater details on pages 55 business days), to give written notice of • properly select and apply to 57 and the internal verification and such fact to all holders of the notes and accounting policies approval process which has been followed make an offer to prepay the entire unpaid this year, the Directors are able to state • present information, including principal amount of the notes, together that the Annual Report and Accounts, accounting policies, in a manner that with accrued interest. taken as a whole, is fair, balanced and provides relevant, reliable, comparable understandable and provides the The Group’s convertible bond and understandable information information necessary for shareholders arrangements provide that the holder • provide additional disclosures when to assess the Company’s performance, of bonds can require the Company to compliance with the specific business model and strategy. redeem its bonds following a change of requirements in IFRS are insufficient to control of the Company at their principal enable users to understand the impact Statements of Directors as to amount, together with accrued interest. of particular transactions, other events disclosure of information to auditors The Company is required to notify the and conditions on the Company’s and Each of the Directors at the date of bond holder within 14 days of a change the Group’s financial position and approval of this report confirms that: of control. financial performance • so far as the Director is aware, there is Some other commercial agreements, • make an assessment of the Company’s no relevant audit information of which entered into in the normal course ability to continue as a going concern. the Company’s auditors are unaware of business, include change of control provisions. The Directors are responsible for keeping • the Director has taken all the steps adequate accounting records that are that he or she ought to have taken as The Group’s share and incentive plans sufficient to show and explain the a Director to make himself or herself include usual provisions relating to Company’s transactions and disclose aware of any relevant audit information change of control, as do the terms of with reasonable accuracy, at any time, and to establish that the Company’s the Company’s cumulative convertible the financial position of the Company auditors are aware of that information. redeemable preference shares. and enable them to ensure that the This confirmation is given and should There are no agreements providing financial statements comply with the be interpreted in accordance with for compensation for the Directors Companies Act 2006. They are also the provisions of Section 418 of the or employees on a change of control. responsible for safeguarding the assets Companies Act 2006. of the Company and for taking reasonable Financial instruments steps for preventing and detecting fraud By order of the Board The Group’s financial risk management and other irregularities. objectives and policies and its exposure Chris Vaughan to the following risks – foreign exchange, The Directors are responsible for the Chief Corporate Officer & interest rate, price and credit – are detailed maintenance and integrity of the corporate Company Secretary in Note 39 on pages 146 to 150. and financial information included on 5 March 2014 the Company’s website. Legislation in Registered Office: Statement of Directors’ the UK governing the preparation and 130 Wilton Road responsibilities dissemination of financial statements may London SW1V 1LQ The Directors are responsible for differ from legislation in other jurisdictions. Registered in England Number 395826 preparing the Annual Report and the The Directors confirm that to the best financial statements in accordance with of their knowledge: applicable law and regulations.

• the financial statements, prepared in Company law requires the Directors to accordance with IFRS as adopted by the prepare financial statements for each EU and Article 4 of the IAS Regulation, financial year. Under that law, the give a true and fair view of the assets, Directors are required to prepare the liabilities, financial position and profit Group financial statements in accordance or loss of the Company and the with International Financial Reporting undertakings included in the Standards (IFRS) as adopted by the consolidation taken as a whole European Union (EU) and Article 4 of the

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Remuneration Report

strength of the order intake, a cost Performance Share Plan were not reduction programme and the achieved and so those awards will lapse development of the organisational in full in April 2014. structure Remuneration policy for 2014 • instead of the Company’s traditional We remain committed to ensuring that approach of measuring 50% of any rewards for executives are closely aligned Performance Share Plan (PSP) award to the interests of shareholders through based on EPS growth targets and having all of our incentive arrangements 50% based on relative TSR against linked to the achievement of challenging the FTSE 51-150, recognising the business performance targets and difficulties in determining meaningful generation of strong levels of shareholder I am pleased to present the EPS targets in a period of transition and return. We remain comfortable that this structural change, the 2013 PSP awards is the case. As such, we feel that the Remuneration Committee’s were based solely on relative TSR existing remuneration policy remains report for 2013 on Directors’ performance. 50% of an award is based fit for purpose and are not proposing remuneration. on the current FTSE 51-150 companies to make any significant changes to the and 50% is based on a construction and policy for 2014. Specifically: This report will be subject to two professional services based group of shareholder votes at the forthcoming AGM: companies, including international peers • base salary remains appropriately positioned against the market. Base • the Directors’ Remuneration Policy • in addition to the normal 150% of salary salaries were not increased with Report sets out the forward looking PSP award level, Duncan Magrath effect from 1 July 2013 Directors’ remuneration policy for received a 50% of salary PSP award the Company which will, subject to in April 2013. While his normal award • the structure of the annual bonus shareholder approval, become formally of 150% of salary is based on the remains appropriate to incentivise effective from the 2014 AGM same performance targets as the the delivery of annual objectives. The awards granted to the other executive maximum bonus opportunity remains • the Annual Report on Remuneration at 120% of salary for all executive provides details of how the policy Directors, the additional award is based on personally tailored targets covering Directors and will be subject to a range for 2014 will be operated and the of challenging PBT and strategic targets remuneration earned by Directors Group capital structure and the in the year ended 31 December 2013. execution of the strategic planning • the long term incentive awards under (Strategic Roadmap) process, measured the PSP will again be based on TSR Summary of major decisions made over a 15 month period to June 2014. versus the FTSE 51-150 and a group in 2013 The additional award will vest, subject of construction and professional Following consultation with major to the achievement of the performance services companies, providing shareholders and representative bodies, targets and continued service, on strong alignment of interest between the remuneration policy for 2013 was 31 December 2014 although these executives and shareholders. adjusted to take account of a number shares must be retained by Mr Magrath of factors, notably the appointment of until the vesting date of the normal The Committee encourages dialogue Andrew McNaughton replacing Ian Tyler PSP awards (ie April 2016). with the Company’s shareholders and as Chief Executive in March 2013 and the will consult with major shareholders challenges in a number of our markets, Performance and reward for 2013 ahead of any significant future changes especially in UK construction, which have The Group has continued to face to remuneration policy, although it is required, in the immediate term, an urgent challenging trading conditions in many intended that the policy for which drive and focus on operational efficiency of its traditional construction markets shareholder approval will be sought at and rigorous cost control measures. While and is taking action to improve operational the 2014 AGM will remain in operation not reflecting a significant divergence performance and effectiveness. Underlying for the forthcoming three financial years. PBT from continuing operations, which from the Company’s existing policy, I hope that you will be supportive of the is the measure on which we based the following changes were considered two resolutions to approve the Directors’ performance for 70% of AIP, was below to be important: Remuneration Report at the 2014 AGM. threshold, meaning that no bonus was • instead of basing the entire Annual payable under the PBT element. The Iain Ferguson Incentive Plan (AIP) on profit before tax Group however made progress against Chairman of the and non-underlying items (PBT), in view strategic initiatives in 2013, resulting in a Remuneration Committee of the strategic challenges facing the 21.0% payout against the 30% strategic business, strategic measures linked element. In the light of disappointing to the repositioning of the business financial performance the Executive for future growth were introduced. Directors decided that all of their cash Accordingly, for 2013, PBT was retained bonus entitlement, which was earned for 70% of the bonus opportunity (albeit for achievement of strategic initiatives, the payout range was toughened) with should be deferred in shares for three the remaining 30% determined by years. The EPS and TSR performance strategic targets based around the conditions relating to the 2011

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DIRECTORS’ REMUNERATION Policy Report

This part of the Remuneration Report sets out the remuneration policy for the Company which will become formally effective following approval from shareholders through a binding vote at the 2014 AGM.

Policy overview The Committee, on behalf of the Board, determines the Company’s remuneration policy and the remuneration packages of the executive Directors of the Company and the Chairman. In setting the remuneration policy, the Committee takes into account a number of factors, including: • general trends in pay and conditions throughout the Group • the positioning of remuneration levels against the external market – the Committee is, however, aware of the risk of an upward ratchet in remuneration levels through overreliance on comparative survey data • the balance between fixed and variable pay – more specifically, variable pay should form a significant but not disproportionately high level of remuneration • the strategy of the business. In setting the overall remuneration policy, general trends and average increases throughout the Group are taken into account when setting executive Directors’ reward packages. A key feature for the executive Directors is that a higher proportion of their remuneration package is delivered through performance related pay, which has a greater linkage to the results of the Group. The areas covered in this Policy Report comprise:

Consideration of shareholders’ views p69 Consideration of employment conditions elsewhere in the Group p69 Summary Directors’ remuneration policy from the 2014 AGM onwards p70 and p71 Remuneration scenarios for executive Directors p72 Recruitment and promotion policy for executive Directors p72 Service agreements and payments for loss of office for executive Directors p73 External appointments of executive Directors p73 Appointment of non-executive Directors p73

Consideration of shareholders’ views The Remuneration Committee considers feedback from shareholders received at each AGM and any feedback from additional meetings, as part of any review of executive remuneration. In addition, the Remuneration Committee engages pro-actively with shareholders and will ensure that shareholders are consulted in advance, where any material changes to the remuneration policy are proposed.

Consideration of employment conditions elsewhere in the Group In determining the remuneration of the Group’s Directors, the Committee takes into account the general trends in pay and conditions across the Group as a whole. Whilst employees have not been consulted formally on executive pay, due in part to the diverse geographic nature of the Company, the Committee seeks to ensure that the underlying principles which form the basis for decisions on Directors’ pay are consistent with those on which pay decisions for the rest of the workforce are taken. These are focused for the most part on market competitiveness, business performance and personal performance. In practice, the remuneration policy for executive Directors is more heavily weighted towards variable pay than for other employees, so that a significant proportion of their remuneration is dependent on Company performance. For employees below Board level variable pay represents a lower proportion of their total remuneration, which is driven by market comparators and general performance.

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DIRECTORS’ REMUNERATION Policy Report CONTINUED

Summary Directors’ remuneration policy from the 2014 AGM onwards The following table sets out a summary of each element of the Directors’ remuneration packages, their link to the Company’s strategy, the policy for how these are operated, the maximum opportunity and a description of any relevant performance metrics.

Element of pay Purpose and link to Company’s strategy How operated in practice Maximum opportunity Performance metrics

Base salary To attract and retain high calibre individuals. Salaries are normally reviewed and set annually in July. There is no prescribed maximum annual increase. The Committee is A number of factors are considered, notably market competitiveness, The Committee considers remuneration levels in guided by the general increase for the broader employee population business and personal performance. To provide a competitive salary relative to comparable companies of comparable market capitalisations, but on occasion may need to recognise, for example, an increase companies in terms of size and complexity. revenue and industry sector. in the scale, scope or responsibility of the role. In addition, a key reference point for salary increases Current salary levels are disclosed on page 75. is the average increase across the general workforce (with the exception of promotions or significant changes in responsibility). Salaries are paid monthly in cash. Benefits To aid retention and to remain competitive in the Private medical and life assurance may be provided. The maximum opportunity for medical benefits is cover for the None marketplace. In addition, medical benefits are executive Director and his family. Life assurance cover and any car A car and fuel card or car allowance are offered. provided to minimise disruption due to absence. or car allowance are based on market norms. Other benefits may be provided as appropriate. Pension To remain competitive in the marketplace. Executive Directors can elect to either: Executive Directors who participate in the Group’s pension fund None benefit from a pension contribution of 20% of base salary up to the • participate in the defined contribution (DC) section of earnings cap and a salary supplement of 20% of base salary in the Group’s pension fund. Executive Directors must excess of the cap. make contributions of 5% of base salary (up to an earnings cap), with the Company contributing 20% of If a salary supplement alone is taken, this is equivalent to 20% base salary (up to the cap). On earnings above the cap, of base salary. executive Directors receive a salary supplement; or • receive a salary supplement. Annual Incentive Plan To motivate executives and incentivise the 50% of any payment is normally deferred into shares Maximum annual incentive opportunity is 120% of base salary. A majority (if not all) of the bonus will be based on profit and a minority (AIP) and Deferred achievement of key business performance targets for three years. of the bonus may be based on other performance metrics linked to the Bonus Plan (DBP) over the financial year without encouraging excessive business strategy, measured over a one year performance period. Clawback may apply in the event of material misconduct risk taking. Managing risk is critical, particularly given and/or material misstatement or error of financial results. Measures are reviewed each year and varied as appropriate to reflect the nature of the Company’s business. the strategy. Participants may also receive an award of cash or shares To facilitate share ownership and provide further in lieu of the value of dividends on vested shares. alignment with shareholders. Performance Share Plan To incentivise and reward delivery of long term PSP awards are granted annually so that no undue The limit in the rules of the PSP is 200% of base salary. Other Performance measures will normally be based on relative total (PSP) performance linked to the business strategy. emphasis is placed on performance in any one particular than in exceptional circumstances, the normal limit will be 175% shareholder return (TSR) and/or earnings per share metrics although financial year. of base salary. strategic measures may be used in exceptional circumstances. Targets To facilitate share ownership and provide further will normally be measured over a three year performance period. alignment with shareholders. Awards normally vest on the third anniversary subject to performance. There is 25% vesting for threshold performance, rising to 100% vesting To aid retention. for maximum performance. Participants may also receive an award of cash or shares in lieu of the value of dividends on vested shares. Clawback may apply in the event of material misconduct and/or material misstatement or error of financial results. Shareholding guidelines To align the interests of executive Directors with Executive Directors are expected to accumulate a – None those of shareholders. shareholding in the Company’s shares to the value of 100% of their base salary. Executive Directors are expected to retain at least 50% of shares (net of tax) which vest from awards made under the PSP and DBP until the target shareholding is attained.

Notes: 1. Directors may also participate in the all-employee share schemes up to prevailing HMRC Limits. 2. The AIP is primarily, if not solely, based on PBT although other Group-based measures which are set to reflect the business strategy may be included. The Remuneration Committee reviews these measures each year and varies them as appropriate to reflect the strategy for the year ahead. 3. Relative TSR performance was considered to be the most appropriate long term incentive performance condition for awards granted in 2013, although earnings per share targets determined half of previous awards and may be operated going forward. Executive Directors should be incentivised to achieve strong stock market performance and grow earnings, to align their interests with those of shareholders. The Committee reserves the discretion to introduce additional internal financial or strategic measures for future awards which will be set to reflect the prevailing strategy although investors will be consulted in advance where there is a material change. 4. The Committee operates share plans in accordance with the respective rules and in accordance with the Listing Rules and HMRC where relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of certain plans. 5. For avoidance of doubt, in approving this Directors’ Remuneration Policy Report, authority is given to the Company to honour any commitments entered into with current or former Directors (such as the vesting of past share awards).

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Element of pay Purpose and link to Company’s strategy How operated in practice Maximum opportunity Performance metrics

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DIRECTORS’ REMUNERATION Policy Report CONTINUED

Remuneration scenarios for executive Directors The charts below provide estimates for the potential future remuneration based on the remuneration policy for 2014 for the three executive Directors. Potential outcomes are based on three performance scenarios: minimum, on-target and maximum.

2,750 £2,716 42% 2,500

2,250

2,000

£1,757 £1,738 1,750 £1,674 32% 38% 38% 1,500 29%

£’000 1,250 £1,100 £1,140 22% 1,000 29% 29% 31% 31% £798 750 100% 46% 29% 23% 23% £526 £542 500 100% 48% 31% 100% 48% 31% 250

0 Minimum On-target Maximum Minimum On-target Maximum Minimum On-target Maximum Andrew McNaughton, Duncan Magrath, Peter Zinkin, Chief Executive Chief Financial Ofﬁcer Planning and Development Director

Basic salary, beneﬁts and pensions Annual Incentive Plan (cash and deferred) Performance Share Plan

Notes: 1. Salary levels are based on those applying from 1 July 2013. 2. The value of benefits receivable in 2014 is taken to be the value of benefits received in 2013 (as shown in the Directors Remuneration table, set out on page 76) and pension has been assumed to be worth 20% of salary. 3. The on-target level of AIP is taken to be 50% of the maximum AIP opportunity (120% of salary for all executive Directors), of which 50% is paid in cash and 50% is deferred in shares under the DBP. 4. The on-target level of vesting under the PSP is taken to be 50% of the face value of the award at grant (under normal circumstances, 175% of salary for the Chief Executive and 150% of salary for the other executive Directors). 5. The maximum level of AIP and vesting under the PSP is taken to be 100% of the AIP opportunity and 100% of the face value of the award at grant respectively. 6. No share price appreciation or dividend awards have been assumed for the DBP shares and PSP awards.

Recruitment and promotion policy for executive Directors To ensure the ongoing leadership continuity of the Group, the appointment of high calibre executives may be necessary, either by external appointment or internal promotion. The remuneration package for a new executive Director would be set in accordance with the terms of the Company’s remuneration policy at the time of appointment and take into account the scope and complexity of the role, the experience of the individual, the prevailing market rate for that experience and the importance and immediacy of securing that candidate. The salary would be provided at such a level as required to attract the most appropriate candidate. The AIP potential would be limited to 120% of salary and grants under the PSP may be up to the plan maximum of 200% of salary. In addition, the Committee may offer additional cash and/or share-based elements to replace deferred or incentive pay forfeited by an executive leaving a previous employer. It would seek to ensure, where possible, that these awards would be consistent with awards forfeited in terms of vesting periods, expected value and performance conditions. For an internal executive Director appointment, any remuneration awarded in respect of the prior role may be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other ongoing remuneration obligations existing prior to appointment may continue. For external and internal appointments, the Committee may agree that the Company will meet certain relocation and/or incidental expenses as appropriate.

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Service agreements and payments for loss of office for executive Directors It is the Company’s policy that executive Directors should have contracts with an indefinite term, which are subject to one year’s notice by the Company and six months’ notice by the Director. In accordance with the UK Corporate Governance Code, all executive Directors submit themselves for re-election at the AGM. In the event of early termination, the Directors’ contracts provide for compensation in line with their contractual notice period. In summary, the contractual provisions are to provide the following:

Provision Detailed terms Notice period 12 months by the Company, six months by the Director.

There are no contractual compensation provisions for termination of employment. However, other non-contractual considerations are as follows: Notice payments If any existing contract is breached by the Company, it would be liable to pay an amount approximating to the net loss of salary and contractual benefits for the unexpired notice period, subject to mitigation and phased payments where appropriate. Remuneration entitlements Pro rata bonus may also become payable for the period of active service along with vesting for outstanding share awards (in certain circumstances – see below). In all cases performance targets would apply. Change of control No executive Director’s contract contains additional provisions in respect of change of control.

Any share-based entitlements granted to an executive Director under the Company’s share plans will be determined based on the relevant plan rules. The default treatment under the PSP is that any outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, ill-health, disability, retirement or other circumstances at the discretion of the Committee, good leaver status may be applied. For good leavers, awards will not be forfeited on cessation of employment and subject to the satisfaction of the relevant performance conditions, will vest under the normal vesting schedule, being reduced pro rata to reflect the proportion of the performance period actually served. However, the Remuneration Committee has discretion to determine that PSP awards vest at cessation and/or to amend time pro rating. Outstanding DBP awards will lapse on cessation of employment. However, in certain good leaver circumstances, DBP awards will vest in full on the date of cessation.

External appointments of executive Directors The Committee recognises that benefits can arise from allowing executive Directors to take a non-executive directorship elsewhere. Executive Directors are permitted to have one external appointment, from which fees may be retained with the approval of the Board.

Appointment of non-executive Directors Non-executive Directors are appointed by the full Board following recommendations from the Nomination Committee. All non-executive Directors are appointed for a term of three years. In accordance with the UK Corporate Governance Code, all non-executive Directors submit themselves for re-election at the AGM.

Purpose and link to Element of pay Company’s strategy How operated in practice Maximum opportunity Non-executive To attract and retain high The Chairman is paid an annual fee and the As per executive Directors, there Director fees quality and experienced non‑executive Directors are paid an annual base is no prescribed maximum annual non-executive Directors. fee and additional responsibility fees for the role increase. The Committee is guided of Senior Independent Director or for chairing by the general increase in the a Board Committee. non-executive director market and for the broader employee Non-executive Directors based outside Europe population, but on occasions may receive an additional allowance for each visit need to recognise, for example, made on Company business to the UK, or to any an increase in the scale, scope other country (excluding their home country). or responsibility of the role. Fee levels are normally reviewed annually in July. The non-executive Directors are not eligible to join any pension scheme operated by the Company and cannot participate in any of the Company’s share plans or annual incentive schemes.

None of the appointment letters for non-executive Directors contain provision for specific payment in the event of termination for whatever cause and may be terminated at will by either party.

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Annual Report on Remuneration

This part of the Remuneration Report sets out how the remuneration policy will be applied over the year ending 31 December 2014 and how it was implemented over the year ended 31 December 2013. Details of the remuneration earned by executive Directors and the outcomes of incentive schemes, including details of relevant links to Company performance, are also provided in this part. The areas covered in this Annual Report on Remuneration comprise:

Implementation of the Remuneration Policy for the year ending 31 December 2014 p75 Remuneration received by Directors for the year ended 31 December 2013 p76 AIP awards for the year ended 31 December 2013 p77 Vesting of PSP awards for the year under review p77 Outstanding share awards p78 Long term incentive awards granted during the year p79 Payments for loss of office p79 Payments to past Directors p79 Statement of Directors’ shareholdings and share interests p80 Performance graph p80 Chief Executive’s remuneration table p81 Percentage change in Chief Executive’s remuneration p81 Relative importance of spend on pay, dividends and underlying pre tax profit p81 Directors’ pensions and pension allowances p82 and p83 External appointments of executive Directors p84 Consideration by the Directors of matters relating to Directors’ remuneration p84 Statement of shareholder voting at AGM p84

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Implementation of the Remuneration Policy for the year ending 31 December 2014 The detailed information about the Directors’ remuneration, set out on pages 75 to 80 (excluding the performance graph on page 80), has been audited by the Company’s independent auditors Deloitte LLP. Base salaries Current base salaries for the executive Directors are as follows:

1 July 20121 1 July 2013 Base salary £ £ % increase Andrew McNaughton 650,000 650,000 0% Duncan Magrath 425,000 425,000 0% Peter Zinkin 443,000 443,000 0%

1 Andrew McNaughton’s base salary was increased effective from 31 March 2013 on his promotion to Chief Executive.

The annual base salary review date is 1 July for executive Directors. Performance targets for the AIP in 2014 For 2014, the AIP will continue to be based on PBT (70% of the AIP potential) and Group-based measures linked to the business strategy (30% of the AIP potential). The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year as these include items which the Committee considers commercially sensitive. Retrospective disclosure of the targets and performance against them will be seen in next year’s Annual Report on Remuneration. The maximum AIP potential will continue to be 120% of base salary for executive Directors and 50% of any payment will be deferred in shares for three years. Performance targets for PSP awards granted in 2014 The PSP awards to be granted in 2014 will be subject to the following targets: • relative TSR (50%) – the Company’s TSR measured against a comparator group of UK listed companies ranked 51-150 by market capitalisation in the FTSE All Share Index (excluding investment trusts) as at 1 January 2014, the start of the performance period • relative TSR (50%) – the Company’s TSR measured against a comparator group of construction and professional services companies, including international peers • for both parts there is no vesting below median, with 25% vesting at median ranking, rising to 100% vesting at upper quartile or higher. Opening and closing values used to calculate TSR for all companies are based on three month averages. Non-executive Directors As detailed in the Policy Report, the Company’s approach to setting non-executive Directors’ fees is by reference to fees paid at similar companies and reflects the time commitment and responsibilities of each role. A summary of current fees is as follows:

1 July 2012 1 July 2013 £ £ % increase Chairman 265,750 265,750 0% Base fee 56,000 56,000 0% Senior Independent Director fee 10,000 10,000 0% Committee chair fee 10,000 10,000 0%

For non-executive Directors based outside Europe the additional allowance for each overseas visit made on Company business remains at £2,500. Where the Chairman or Senior Independent Director is also the Committee chair, only the Chairman or Senior Independent Director fee is due.

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Annual Report on Remuneration CONTINUED

Remuneration received by Directors for the year ended 31 December 2013 The table below sets out the Directors’ remuneration for the year ended 31 December 2013 (or for performance periods ended in that year in respect of long term incentives) together with comparative figures for the year ended 31 December 2012.

Annual Annual incentive Base salary Taxable incentive deferred Long term and fees1,2 benefits3,4 Pension5 cash6 shares6 incentives7 Other8 Total Year £ £ £ £ £ £ £ £ Executive Directors Duncan Magrath 2013 425,000 15,550 88,789 – 107,100 – – 636,439 2012 415,000 15,550 80,865 102,425 102,425 – – 716,265 Andrew McNaughton 2013 603,021 17,055 125,250 – 163,800 – – 909,126 2012 445,000 15,550 107,182 110,860 110,860 – – 789,452 Peter Zinkin 2013 443,000 9,970 88,600 – 111,636 – – 653,206 2012 436,500 9,881 87,300 106,763 106,763 – 189 747,396 Ian Tyler 9 2013 172,000 6,956 42,296 – – – – 221,252 2012 678,000 27,546 151,845 165,808 165,808 – 280 1,189,287

Non–executive Directors Robert Amen 10 2013 91,000 4,154 – – – – – 95,154 2012 77,500 – – – – – – 77,500 Mike Donovan 11 2013 49,500 3,223 – – – – – 52,723 2012 65,000 – – – – – – 65,000 Iain Ferguson 2013 66,000 3,229 – – – – – 69,229 2012 65,000 – – – – – – 65,000 Maureen Kempston Darkes 12 2013 73,500 1,539 – – – – – 75,039 2012 33,000 – – – – – – 33,000 Hubertus Krossa 13 2013 21,101 – – – – – – 21,101 2012 79,390 – – – – – – 79,390 Steve Marshall 2013 265,750 – – – – – – 265,750 2012 261,875 – – – – – – 261,875 Belinda Richards 14 2013 14,000 – – – – – – 14,000 2012 – – – – – – – – Graham Roberts 2013 66,000 – – – – – – 66,000 2012 65,000 – – – – – – 65,000 Bill Thomas 14 2013 14,000 – – – – – – 14,000 2012 – – – – – – – –

1 Base salary and fees were those paid in respect of the period of the year during which the individuals were Directors. 2 In practice the base salaries paid to Duncan Magrath, Andrew McNaughton and Peter Zinkin have been reduced due to their participation in the Company’s Share Incentive Plan. The salary reductions in 2013 were £1,500 for all three executive Directors. In practice the base salary paid to Peter Zinkin has been further reduced due to his participation in the Company’s SMART Pensions salary sacrifice arrangement. The salary reduction in 2013 was £7,005. This corresponds to his contributions to the Balfour Beatty Pension Fund, which were met directly by the Company as part of this arrangement. The base salary for Peter Zinkin has also been reduced in practice by £24,000 in 2013 to meet additional travelling costs incurred by him in order to fulfil his role. 3 Taxable benefits are calculated in terms of UK taxable values. Duncan Magrath, Andrew McNaughton and Ian Tyler received private medical insurance for the Director and his immediate family. Peter Zinkin received private medical insurance for the Director and his spouse. Duncan Magrath received a car allowance of £14,000 pa. Andrew McNaughton received a car allowance of £14,000 pa prior to 31 March 2013 and £16,000 pa from 31 March 2013. Peter Zinkin received a fully expensed car with taxable benefit value of £8,800 pa. Ian Tyler received a fully expensed car and a fuel card up to 31 March 2013 with taxable benefit value of £26,300 pa. 4 No Director received any expense allowance except Robert Amen, Mike Donovan, Iain Ferguson and Maureen Kempston Darkes whose taxable travel expenses in 2013 are shown in the taxable benefits column. There were no such expenses in 2012. 5 For periods of membership of the DC section of the Group’s pension fund this comprises the amount of Company contributions plus any cash allowances in lieu of pension on earnings that are above the earnings cap. For periods of membership of the defined benefit (DB section of the Group’s pension fund this comprises the value of any ongoing accrual as determined by the scheme actuaries plus any cash allowances in lieu of pension on earnings that are above the earnings cap. For any periods of non-membership of the Group’s pension fund this comprises any cash allowances in lieu of pension contributions. For periods of deferred membership of the DB section of the Group’s pension fund there may also be included the value of any increase in DB benefits as determined by the scheme actuaries. Further details are set out in the section on Directors’ pensions on pages 82 and 83. The figures for 2012 have been restated to comply with new regulations. 6 The Executive Directors decided to defer 100% of their AIP for three years for the year ended 31 December 2013, rather than the usual 50% deferment of award. 7 This relates to the value of the 2011 PSP award which lapsed in full. The performance period for this award ended on 31 December 2013. Further details of these awards are set out on page 77. 8 Relates to the value at vesting of options granted under the Savings-Related Share Option Scheme which became exercisable during the year under review. 9 Ian Tyler retired from the Board on 31 March 2013. He remained an employee until 30 April 2013. 10 Robert Amen’s fees shown include £25,000 in respect of travel allowances for meetings attended in 2013 and £10,000 in respect of travel allowances for meetings attended in 2011 and 2012. 11 Mike Donovan retired from the Board on 1 October 2013. 12 Maureen Kempston Darkes’ fee for 2013 shown includes £17,500 in respect of travel allowances. Her fee for 2012 has been restated to allow for an underpayment of £3,500. The fee re-stated for 2012 includes £5,000 in respect of travel allowances. 13 Hubertus Krossa retired from the Board on 16 May 2013. 14 Belinda Richards and Bill Thomas joined the Group on 1 September 2013.

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AIP award for the year ended 31 December 2013 The AIP award for the year under review was based on performance against profit before tax and underlying items and three other Group‑based performance metrics linked to the business strategy, namely, delivery of cost efficiencies, strength of order book, and restructuring for strategic growth:

Maximum Actual Payable in cash Payable in shares Target Actual (% of salary) (% of salary) (% of salary) (% of salary)3 Profit before tax and Threshold £220m non-underlying items Budget £245m £187.0m 84% 0 0 0 Maximum £294m Delivery of cost efficiencies1 Threshold £54.8m £61.0m 12% 9.72% 0 9.72% Maximum £64.8m Strength of order book2 Threshold £8,184m £9,324m 12% 7.08% 0 7.08% Budget £9,093m Maximum £10,002m Development of the New structure in place in key 70% 12% 8.4% 0 8.4% organisational model geographies with leadership achieved teams and business plans in place for 2014 Total 120% 25.2% 0 25.2%

1 After taking account of non-underlying costs. 2 After taking account of margin inherent in orders received. 3 Executive Directors decided that 100% of their AIP should be deferred in shares for 3 years, rather than the usual 50% cash and 50% deferment.

Vesting of PSP awards for the year under review The PSP awards granted on 1 June 2011 were based on a performance period for the three years ended 31 December 2013. As disclosed in previous Remuneration Reports, the performance condition was as follows:

Threshold Maximum Metric Performance Condition Measure Target Target Actual % Vesting Earnings per share1 EPS growth 15% (25% vesting EPS at 43.35p 54.66p 20.0p 0% (50% of the award) of this part of the award) to 45% 31 December (100% vesting of this part of the award) 2013 over three financial years. Total Shareholder TSR against the 87 companies ranked TSR ranking 44 or above 22.25 62 0% Return2 positions 51-150 in the FTSE All Share or above (50% of the award) Index (excluding investment trusts) as at the start of the performance period and still listed at the end of the performance period. 25% of this part of the award vesting for median performance increasing to 100% of this part of the award vesting for upper quartile performance or above. Total vesting 0%

1 Earnings per share is defined as underlying earnings per share from continuing operations. 2 TSR is measured over three financial years with a three month average at the start and end of the performance period.

The 2011 PSP award details for the executive Directors are therefore as follows:

Value of Number of Number of Number of vested shares Executive Type of award shares at grant1 shares to vest shares to lapse2 (£) Duncan Magrath Conditional 181,729 0 181,729 0 Andrew McNaughton Conditional 193,530 0 193,530 0 Peter Zinkin Conditional 196,834 0 196,834 0 Ian Tyler Conditional 277,550 0 277,550 0

1 Or date of leaving the Company if before 31 December 2013. 2 The 2011 PSP awards will formally lapse on 1 June 2014.

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Annual Report on Remuneration CONTINUED

Outstanding share awards

Maximum number of shares subject to award At Awarded Vested Lapsed At 1 January during during during 31 December Exercisable and/or Exercise Name of Director Share award Date granted 2013 the year the year the year 2013 vesting from price Duncan Magrath PSP1,5,6 15 April 2010 133,826 – – 133,826 – 15 April 2013 – PSP2,5,6 1 June 2011 181,729 – – – 181,729 1 June 2014 – PSP3,5,6 16 April 2012 219,076 – – – 219,076 16 April 2015 – PSP4,5,6,7 16 April 2013 – 341,090 – – 341,090 16 April 2016 – DBP8,9,10,11 31 March 2010 22,761 – 22,761 – – 31 March 2013 – DBP8,9,11,12 31 March 2011 22,876 1,296 – – 24,172 31 March 2014 – DBP8,9,11,12 30 March 2012 58,542 3,317 – – 61,859 30 March 2015 – DBP8,9,11,12,13 31 March 2013 – 46,083 – – 46,083 31 March 2016 – SRSOS14,15,16 7 May 2008 1,073 – – 1,073 – 1 July 2013 315.2p SRSOS14,15,16 18 May 2009 628 – – – 628 1 July 2014 249.0p SRSOS14,15,16 11 May 2010 1,291 – – – 1,291 1 July 2015 236.0p Andrew McNaughton PSP1,5,6 15 April 2010 143,120 – – 143,120 – 15 April 2013 – PSP2,5,6 1 June 2011 193,530 – – – 193,530 1 June 2014 – PSP3,5,6 16 April 2012 232,600 – – – 232,600 16 April 2015 – PSP4,5,6,7 16 April 2013 – 456,460 – – 456,460 16 April 2016 – DBP8,9,10,11 31 March 2010 24,343 – 24,343 – – 31 March 2013 – DBP8,9,11,12 31 March 2011 24,362 1,380 – – 25,742 31 March 2014 – DBP8,9,11,12 30 March 2012 62,155 3,522 – – 65,677 30 March 2015 – DBP8,9,11,12,13 31 March 2013 – 49,879 – – 49,879 31 March 2016 – Peter Zinkin PSP1,5,6 15 April 2010 150,555 – – 150,555 – 15 April 2013 – PSP2,5,6 1 June 2011 196,834 – – – 196,834 1 June 2014 – PSP3,5,6 16 April 2012 232,600 – – – 232,600 16 April 2015 – PSP4,5,6,7 16 April 2013 – 266,653 – – 266,653 16 April 2016 – DBP8,9,10,11 31 March 2010 25,609 – 25,609 – – 31 March 2013 – DBP8,9,11,12 31 March 2011 24,777 1,403 – – 26,180 31 March 2014 – DBP8,9,11,12 30 March 2012 62,155 3,522 – – 65,677 30 March 2015 – DBP8,9,11,12,13 31 March 2013 – 48,035 – – 48,035 31 March 2016 – SRSOS14,15,16 7 May 2008 804 – – 804 – 1 July 2013 315.2p SRSOS14,15,16 11 May 2010 246 – – 246 – 1 July 2013 236.0p Ian Tyler17 PSP1,5,6 15 April 2010 281,036 – – 281,036 – 15 April 2013 – PSP2,5,6 1 June 2011 356,850 – – 79,300 277,550 1 June 2014 – PSP3,5,6 16 April 2012 421,565 – – 234,203 187,362 16 April 2015 – DBP8,9,10,11 31 March 2010 39,835 – 39,835 – – 31 March 2013 – DBP8,9,11,12 31 March 2011 38,506 – 38,506 – – 31 March 2014 – DBP8,9,11,12 30 March 2012 96,558 – 96,558 – – 30 March 2015 – SRSOS14,15 11 May 2010 676 – – 676 – 1 July 2013 236.0p

1 2010 PSP award: 50% of each award is subject to an EPS growth performance condition and 50% is subject to a relative TSR performance condition. Details of the Company’s performance against the performance conditions are set out in last year’s Remuneration Report. The award lapsed in full on 15 April 2013 based on performance over three years financial years to 31 December 2012 as the growth in EPS did not exceed the RPI +6% threshold and the Company’s TSR ranked below the median of the comparator group. 2 2011 PSP award: details of this award are set out on page 77. 3 2012 PSP award: 50% of each award is subject to an EPS growth performance condition measured over a performance period of three financial years to 31 December 2014. 25% of this part of the award will vest for EPS growth of 15%, increasing on a straight line basis to full vesting of this part of the award for EPS growth of 45%. No shares will vest from this part of the award if EPS growth is less than 15%. The other 50% of each award is subject to a relative TSR performance condition measured over three financial years. The Company’s TSR is measured against a comparator group comprising the FTSE 51–150 (excluding investment trusts). 25% of this part of the award will vest for a median ranking, increasing on a straight line basis to full vesting for an upper quartile ranking. No shares will vest from this part of the award if the Company’s TSR is below that of the median of the comparator group. 4 2013 PSP award. Details of this award are set out on page 79. 5 All PSP awards are granted for nil consideration and are in respect of 50p ordinary shares in Balfour Beatty plc. It is the Company’s current intention that awards will be satisfied by shares purchased in the market. 6 The average middle market price of ordinary shares in the Company for the three dealing dates before the PSP award dates, which was used for calculating the number of awards granted, was 302.63p for the 2010 award, 317.78p for the 2011 award, 277.3p for the 2012 award and 249.2p for the 2013 award. The closing middle market price of ordinary shares on the date of the awards was 302.8p, 312.4p, 271.9p and 244.9p. 7 On 16 April 2013 for all participants in the PSP, a maximum of 3,815,247 conditional shares were awarded which are normally exercisable in April 2016. 8 All DBP awards are granted for nil consideration and are in respect of 50p ordinary shares in Balfour Beatty plc. It is the Company’s current intention that awards will be satisfied by shares purchased in the market. 9 The initial DBP awards made in 2011, 2012 and 2013 will vest on 31 March 2014, 30 March 2015, and 31 March 2016 respectively, providing the Director is still employed by the Company at the vesting date (unless specified leaver conditions are met, in which case early vesting may be permitted). 10 The initial DBP awards made in 2010 vested on 31 March 2013. The closing middle market price of ordinary shares in the Company on the vesting date was 234.8p. 11 The shares awarded on 31 March 2010, 31 March 2011, 30 March 2012 and 31 March 2013 were purchased at average prices of 300.32p, 343.417p, 286.99p, and 234.85p respectively.

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12 For the initial DBP awards made in 2011, 2012 and 2013, the shares awarded on 24 April 2013 and 9 October 2013 (in lieu of the final 2012 and interim 2013 dividends respectively) were allocated at average prices of 244.8p and 264.1p respectively. 13 On 31 March 2013, for all participants in the DBP, a maximum of 575,983 conditional shares were awarded which will normally be released on 31 March 2016. On 24 April 2013 a further 64,953 conditional shares were awarded in lieu of entitlements to the final 2012 dividend and on 9 October a further 37,656 conditional shares were awarded in lieu of entitlements to the interim 2013 dividend. 14 All Savings related share option scheme (SRSOS) options are granted for nil consideration on grant and are in respect of 50p ordinary shares in Balfour Beatty plc. 15 The closing market price of the Company’s ordinary shares on 31 December 2013 was 286.9p. During the year the highest and lowest closing market prices were 207.6p and 291.5p respectively. 16 The SRSOS options granted to Duncan Magrath and Peter Zinkin in May 2008, exercisable at 315.2p, lapsed unexercised in December 2013. 17 Ian Tyler retired from the Board on 31 March 2013. He remained an employee until 30 April 2013. At this time a proportion of his 2011 and 2012 PSP awards lapsed reflecting the proportion of the performance period for each award which had not been completed at the date of leaving. The 2011 PSP awards subsequently lapsed in full. The remainder of the 2012 PSP award will vest in the same proportion, and at the same time in 2015 as the awards made to the other participants. The DBP awards made to him in 2011 and 2012 vested on 30 April 2013.

Long term incentive awards granted during the year On 16 April 2013, the following PSP awards were granted to executive Directors:

Share price Number of % of face value applied shares over that would vest Basis of award at date which award Face value of at threshold Vesting determined Executive Type of award granted of grant was at granted award performance by performance over Vesting date Andrew McNaughton Conditional 175% of salary £2.492 456,460 £1,137,500 25% Three financial 16 April 2016 of £650,000 years to Duncan Magrath Conditional 150% of salary £2.492 255,818 £637,500 25% 31 December of £425,000 2015 Peter Zinkin Conditional 150% of salary £2.492 266,653 £664,500 25% of £443,000

50% of each award above is measured against a comparator group comprising the FTSE 51–150 (excluding investment trusts) and 50% is measured against the following group of construction and professional services companies – AECOM, Atkins, Bilfinger and Berger, Carillion, Costain, Hochtief, Morgan Sindall, Tutor Perini, Skanska and URS. 25% of each part of the award will vest for a median ranking, increasing on a straight line basis to full vesting for an upper quartile ranking. No shares will vest under each part of the award if the Company’s TSR is below that of the median of the relevant comparator group. In addition to the above and on the same date, and following consultation with the Company’s major shareholders, the following PSP awards were granted to Duncan Magrath in order to incentivise the achievement of key business objectives:

Number of % of face value Share price shares over that would vest Basis of award applied at date which award Face value of at threshold Vesting determined Executive Type of award granted of grant was at granted award performance by performance over Vesting date Duncan Magrath Conditional 50% of salary £2.492 85,272 £212,500 25% Fifteen months 31 December of £425,000 to 30 June 2014 2014*

* While this additional award will vest on 31 December 2014, any shares which vest must be retained until the normal vesting date of the main PSP awards (ie 16 April 2016). Performance targets for the additional 50% of salary award granted to Duncan Magrath were (i) to review the Group’s capital structure and implement changes as appropriate, and (ii) to lead the strategic planning (Strategic Roadmap) process in 2013 and implement improvements in 2014.

Payments for loss of office In line with contractual entitlements, Ian Tyler worked four months of his 12 months’ notice period, up to 30 April 2013 (after retiring from the Board on 31 March 2013), to ensure a smooth handover to Andrew McNaughton. In April 2013 Ian Tyler received his base salary of £57,333 and continued to receive his taxable benefits. He also accrued an additional month’s entitlement under the PSP. In lieu of the remainder of the notice period, he received a payment of £265,360 from the Company equivalent to four months’ base salary and benefits (for pension treatment see page 82) and phased monthly payments of £66,340 for each of the four months from September to December 2013, which would have been subject to an offset against any remuneration earned in a comparable role during this period. He also continued to receive private medical insurance for himself and his immediate family until 31 December 2013. As disclosed in the 2012 Remuneration Report, Ian Tyler has been treated as a good leaver under the relevant share plans. On 30 April 2013, his outstanding DBP awards vested in full and a proportion of his PSP awards lapsed reflecting the proportion of the performance period for each award which had not been completed at that date. The remainder of his PSP awards will vest subject to performance in the same proportion, and at the same time, as the awards made to the other participants.

Payments to past Directors There were no payments to past Directors other than the payments disclosed in this report for Ian Tyler.

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Annual Report on Remuneration CONTINUED

Statement of Directors’ shareholdings and share interests The interests of the Directors and connected persons (including, amongst others, members of the Director’s immediate family) in the share capital of Balfour Beatty plc and its subsidiary undertakings during the year are set out below:

Beneficially owned at 31 December Beneficially 2013 as a % Beneficially owned at of base salary at owned at 31 December Outstanding Outstanding 31 December Director 1 January 20131,2 20132,3,4 PSP awards DBP awards 2013 Guideline met Duncan Magrath 119,167 130,754 741,895 132,114 88.27% No Andrew McNaughton 115,001 127,311 882,590 141,298 60.57% No Peter Zinkin5 308,058 313,720 696,087 139,892 203.17% Yes Ian Tyler 376,595 26,595 464,912 – n/a n/a Robert Amen 10,139 10,139 Mike Donovan 10,000 10,000 Iain Ferguson 25,000 45,000 Maureen Kempston Darkes – 7,000 Hubertus Krossa 7,142 7,142 Steve Marshall 7,142 7,142 Belinda Richards – – Graham Roberts 15,000 15,000 Bill Thomas – –

1 Or date of appointment, if later. 2 Includes any shares held in the Company’s all-employee Share Incentive Plan. 3 Or date of departure, if earlier. 4 As at 5 March 2014, there have been no changes to the above other than in respect of investments under the Share Incentive Plan which increased by 83 shares for each of Duncan Magrath, Andrew McNaughton and Peter Zinkin. 5 Peter Zinkin was also interested at 1 January 2013 and 31 December 2013 in 325 cumulative convertible redeemable preference shares of 1p each in Balfour Beatty plc.

The executive Directors are required to hold shares in the Company worth 100% of base salary and must retain no fewer than 50% of the shares, net of taxes, vesting under the DBP and PSP until the required shareholding is achieved.

Performance graph As in previous reports, the Remuneration Committee has chosen to compare the TSR on the Company’s ordinary shares against the FTSE 250 Index (excluding investment trusts) principally because this is a broad index of which the Company is a constituent member. The values indicated in the graph show the share price growth plus reinvested dividends from a £100 hypothetical holding of ordinary shares in Balfour Beatty plc and in the index, and have been calculated using 30 trading day average values.

350

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0 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013

FTSE 250 (excluding investment trusts) Index Balfour Beatty plc

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Chief Executive’s remuneration table The total remuneration figures for the Chief Executive during each of the last five financial years are shown in the table below. The total remuneration figure includes the AIP award based on that year’s performance and the PSP award based on the three year performance period ending in the relevant year. The AIP payout and PSP vesting level as a percentage of the maximum opportunity are also shown for each of these years.

Year ending in 2009 2010 2011 2012 2013 Total remuneration1 £1,617,223 £1,451,016 £1,514,007 £1,189,287 £961,350 AIP (%) 60.4% 69.6% 65.3% 40.2% 21.0% PSP (%) 50% 18.4% 0% 0% 0%

1 The figures for 2009 to 2012 relate to Ian Tyler who retired from the Board on 31 March 2013. The figure for 2013 relates to an annualised figure for Andrew McNaughton who was appointed on 31 March 2013.

Percentage change in Chief Executive’s remuneration compared to all employees The table below shows the percentage change in the Chief Executive’s salary, benefits and annual bonus between the financial years ended 31 December 2012 and 31 December 2013, compared to the percentage increase in the same for all UK employees of the Group where UK employees have been selected as the most appropriate comparator.

2012 2013 % change Salary for 12 months to 31 December Chief Executive (£000) 6781 6502 (4.1) All UK employees (£m) 778 793 1.9 Benefits for 12 months to 31 December Chief Executive (£000) 281 18 (35.7) All UK employees (£m) 29 30 3.4 Annual bonus earned in 12 months to 31 December Chief Executive (£000) 332 164 (50.6) All UK employees (£m) 9 13 44.4 Total remuneration for 12 months to 31 December Chief Executive (£000) 1,038 832 (19.8) All UK employees (£m) 816 836 2.5

1 Received by Ian Tyler. 2 Salary received by Andrew McNaughton, annualised to reflect salary receivable for a full year’s service in role.

Relative importance of spend on pay, dividends and underlying pre tax profit The following table shows the Company’s actual spend on pay for all Group employees relative to dividends and underlying pre tax profit:

2012 2013 % change Staff costs (£m)1 2,253 2,297 2.0 Dividends (£m) 96 96 0 Underlying pre tax profit (£m)2 299 177 (40.1)

1 Staff costs include base salary, benefits and bonuses for all Group employees in continuing and discontinued operations. 2 Underlying pre tax profit is from continuing and discontinued operations.

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Annual Report on Remuneration CONTINUED

Directors’ pensions and pension allowances Only Peter Zinkin and Ian Tyler participated in the Balfour Beatty Pension Fund (the Fund) during 2013. Peter Zinkin participated in the defined contribution (DC) section and Ian Tyler participated in the defined benefit (DB) section up to 30 April 2013. He ceased to be employed by the Company on 30 April 2013 and became a deferred pensioner of the Fund at this date. The DC section of the Fund is a money purchase scheme with a normal retirement age of 65. The DB section of the Fund provides for a pension at a normal retirement age of 62, although the majority of benefits can be taken unreduced from age 60. Each participating Director pays an annual contribution equal to 5% of contributory salary except where the Director participates in the Company’s SMART Pensions salary sacrifice arrangement as outlined in Note 2 in the Directors’ remuneration table on page 76. The Fund operates a Fund-specific earnings cap for pension purposes. The pensionable earnings of each participating Director were subject to the Fund-specific earnings cap. The Company paid allowances to Peter Zinkin and Ian Tyler in lieu of pension contributions on earnings above the Fund-specific earnings cap, which are included in the Directors’ remuneration table on page 76. Duncan Magrath opted out of the DB section of the Fund on 5 April 2012 and became a deferred pensioner. In accordance with the Fund rules his deferred pension was revalued in the year in line with price inflation (measured by the Retail Prices Index). He chose not to participate in the DC section of the Fund and has been receiving an allowance in lieu of Fund membership since 6 April 2012. The Company’s paid an allowance to Duncan Magrath in lieu of Fund membership which is included in the Directors’ remuneration table on page 76. Andrew McNaughton opted out of the DB section of the Fund on 31 December 2012 and became a deferred pensioner. In accordance with the Fund rules his deferred pension was revalued in the year in line with price inflation (measured by the Retail Prices Index). He chose not to participate in the DC section of the Fund and has been receiving an allowance in lieu of Fund membership since 31 December 2012. The Company paid an allowance to Andrew McNaughton in lieu of Fund membership which is included in the Directors’ remuneration table on page 76. Peter Zinkin opted out of the DB section of the Fund on 31 December 2010 and has been receiving his DB pension from 1 January 2011. He has not accrued any further DB pension in the Fund since 31 December 2010. The pension table below sets out the accrued DB deferred pension at based on each executive Director’s service to their date of becoming a deferred pensioner of the Fund and the Pension amount. The `Pension amount’ for Duncan Magrath, Andrew McNaughton and Ian Tyler is the value of the increase in each Director’s DB deferred pension, in excess of price inflation (measured by the Consumer Prices Index) less contributions paid by the Director, over the year ended 31 December 2013. The Pension amount for Peter Zinkin is the amount of the Company’s contributions paid to the DC section of the Fund excluding any SMART Pensions salary sacrifice amounts. Figures for 2012 are included for comparative purposes. The Pension amount is included in the Directors’ remuneration table on page 76.

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Accrued DB Accrued DB deferred deferred Age at pension at pension at Pension Pension 31 December 31 December 31 December amount over amount over 2013 2012 2013 2012 2013 Name of Director Years £ pa1 £ pa1 £ 2 £2 Duncan Magrath 3 49 38,191 39,201 4,838 3,789 Andrew McNaughton 50 46,832 48,071 58,391 4,646 Peter Zinkin 4 60 n/a n/a 27,090 28,020 Ian Tyler 5 53 58,417 64,392 71,231 87,381

1 These amounts represent each Director’s accrued DB deferred pension at the relevant date. In accordance with the Fund Rules accrued DB deferred pension in excess of Guaranteed Minimum Pension has been increased in line with the Retail Prices Index between each Director’s date of becoming a deferred pensioner of the Fund and the relevant date. 2 These amounts represent the value of the increase in excess of inflation (where inflation is measured as the annual increase in the Consumer Prices Index to the September before the relevant date) of the accrued DB deferred pension over the period, less Director contributions. The increase in benefits has been calculated using HMRC methodology and then multiplied by a factor of 20. The figures for Peter Zinkin represent the contributions paid over the period by the Company into the DC section of the Fund excluding any SMART Pensions salary sacrifice amounts. 3 The accrued DB deferred pension figures shown for Duncan Magrath include his DB benefits in the Fund purchased with Additional Voluntary Contributions (AVCs). In May 2013 the Fund paid an Annual Allowance tax charge of £27,249 to HMRC on Duncan Magrath’s behalf in a ‘Scheme Pays’ arrangement. The value of this tax charge has been recorded as a negative DC contribution in respect of Duncan Magrath and will be rolled up to the Director’s retirement date, at which point it will be used to reduce the level of DB pension to which he is entitled from the Fund. The pensions table above makes no allowance for Duncan Magrath’s Scheme Pays arrangement. 4 Peter Zinkin has not accrued any DB benefits in the Fund since 31 December 2010. Peter Zinkin has participated in the DC section since 1 January 2011, and the Company paid £28,020 into this arrangement during 2013, in addition to his SMART Pensions salary sacrifice of £7,005. 5 Ian Tyler has not accrued any benefits in the Fund since 30 April 2013. Immediately prior to him becoming a deferred pensioner of the Fund, the Company contributed £40,420 towards augmenting his accrued deferred pension. Ian Tyler’s accrued DB deferred pension at 30 April 2013 included this augmentation of £2,391 pa. In May 2013 the Fund paid an Annual Allowance tax charge of £3,950 to HMRC on Ian Tyler’s behalf in a ‘Scheme Pays’ arrangement. The value of this tax charge has been recorded as a negative DC contribution in respect of Ian Tyler and will be rolled up to the Director’s retirement date, at which point it will be used to reduce the level of DB pension to which he is entitled from the Fund. The pensions table above makes no allowance for Ian Tyler’s ‘Scheme Pays’ arrangement.

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Annual Report on Remuneration CONTINUED

External appointments of executive Directors During 2013 Duncan Magrath acted as a non-executive Director of Brammer plc and received fees of £37,000 which he retained.

Consideration by the Directors of matters relating to Directors’ remuneration The members of the Remuneration Committee are independent non-executive Directors, as defined under the Corporate Governance Code. No member of the Committee has conflicts of interest arising from cross directorships and no member is involved in the day-to-day executive management of the Group. During the year under review, the members of the Committee were as follows: • Iain Ferguson (Committee chair) • Maureen Kempston Darkes (from 13 September 2013) • Hubertus Krossa (retired from the Board on 16 May 2013) • Steve Marshall • Graham Roberts. The Committee also receives advice from several sources, namely: • the Chief Executive and the HR director, who are invited to attend meetings of the Committee but are not present when matters relating directly to their own remuneration are discussed • New Bridge Street (a trading name of Aon plc), (NBS). NBS has been appointed as external independent executive remuneration advisers by the Committee and has provided a range of advice to the Committee during the year, including: • provision of pay benchmarking data for the executive Directors and non-executive Directors • annual update for the Committee on developments in best practice, market experience and regulatory requirements for all remuneration elements • assistance with the drafting of the Remuneration Report • valuation of share-based payments for IFRS 2 purposes • calculation of vesting levels under the TSR element of the PSP awards. Neither NBS nor any part of Aon plc provided any other services to the Company during the year under review. Total fees paid to NBS in respect of its services to the Remuneration Committee were £55,798. NBS is a signatory to the Remuneration Consultants’ Code of Conduct. The Committee is satisfied that the advice that it receives from NBS is objective and independent.

Statement of shareholder voting at AGM At the 2013 AGM, the Remuneration Report received the following votes from shareholders

Total number of votes % of votes cast For 303,759,518 75.21% Against 100,110,156 24.79% Total votes cast 403,869,674 100% Abstentions 42,527,882

The Committee has reflected on the significantly lower vote in favour of the Remuneration Report at the AGM in 2013, which it concluded could be attributed largely to investors’ concerns around the financial performance of the Group, following the operational issues in Construction Services UK, rather than specific issues with the remuneration policy, which had only recently been reviewed by major shareholders. By order of the Board

Iain Ferguson Chairman of the Remuneration Committee 5 March 2014

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financial statements

Financial Statements 86 Independent Auditor’s Report 88 Group Income Statement 90 Group Statement of Comprehensive Income £12 trillion 91 Group Statement of Changes in Equity Estimated value of global 92 Company Income Statement infrastructure market 92 Company Statement of Comprehensive Income in 2014–20181 93 Company Statement of Changes in Equity 94 Balance Sheets 96 Statements of Cash Flows 98 Notes to the Financial Statements

Other 158 Unaudited Group Five-Year Summary 159 Shareholder Information

£10 billion Revenue2 generated this year

–37% –32% underlying3 earnings pre-tax 14.1p per share from underlying3 profit dividends per continuing from continuing share operations operations

1 IHS Global Insight, Global Construction Outlook, December 2013. Reflects total size of Infrastructure market in nominal terms from 2014–2018 inclusive. Exchange rate applied: USD:GBP 1:0.61. 2 Including joint ventures and associates. 3 Before non-underlying items (Note 10).

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Going concern Independent Auditor’s Report As required by the Listing Rules we have reviewed the Directors’ statement to the Members of on page 27 that the Group is a going concern. We confirm that: Balfour Beatty plc • we have not identified material uncertainties related to events or conditions that may cast significant doubt on the Group’s ability to continue Opinion on financial statements of 2006 and, as regards the Group as a going concern which we believe Balfour Beatty plc financial statements, Article 4 of the would need to be disclosed in In our opinion the financial statements: IAS Regulation. accordance with IFRSs as adopted • give a true and fair view of the state of The financial statements comprise the Group by the European Union; and the Group’s and of the Parent and Parent Company Income Statements, • we have concluded that the Directors’ Company’s affairs as at 31 December the Group and Parent Company Statements use of the going concern basis of 2013 and of the Group’s loss and of Comprehensive Income, the Group and accounting in the preparation of the Parent Company’s profit for the year Parent Company Balance Sheets, the Group financial statements is appropriate. then ended; and Parent Company Cash Flow Statements, However, because not all future events • have been properly prepared in the Group and Parent Company Statements or conditions can be predicted, this accordance with International Financial of Changes in Equity and the related Notes 1 statement is not a guarantee as to Reporting Standards (IFRSs) as adopted to 41. The financial reporting framework the Group’s ability to continue as a by the European Union; and that has been applied in their preparation going concern. • have been prepared in accordance with is applicable law and IFRSs as adopted by the requirements of the Companies Act the European Union.

Our assessment of risks of material misstatement The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:

Subject Nature of risk How the scope of our audit responded to the risk Recognition The industry is characterised by Our work on the recognition of contract revenue, margin and related of contract contract risk with significant receivables and liabilities included: revenue, judgements involved in the • tests of controls over the recognition of contract revenue and margin; margin and assessment of current and future • challenge of management’s key judgements inherent in the forecast related contract financial performance, costs to complete that drive the accounting under the percentage receivables variations to original contract terms of completion method, including a review of the contract terms and liabilities and claims. and conditions, management’s assessments of the forecasts, the existence and valuation of claims and variations both within contract revenue and contract costs; and • an assessment of the recoverability of related receivables. Goodwill Management is required to carry out We assessed and challenged management’s assumptions used in an annual impairment test which the impairment model for goodwill and intangible assets, described incorporates judgements based on in Note 15 to the financial statements, including benchmarking the assumptions about future profitability discount and long-term growth rates, against third party data and for the related businesses. assessing the reasonableness of forecast future cash flows by comparison to historic performance and future outlook. Assets held The classification and valuation of We challenged management’s judgement on assets held for sale for sale, assets as held for sale is a key area of through understanding the status of the sales process and reviewing discontinued management judgement. In addition, correspondence from prospective purchasers. We assessed the operations the classification of businesses as classification of disposed businesses and assets held for sale as and disposal discontinued operations must be discontinued operations against the relevant criteria in the accounting accounting carefully considered in line with the standard. For disposed businesses we tested the calculation of the relevant accounting standard. In relation gain or loss on disposal and challenged the judgements made in relation to disposed operations, management to consideration and disposal provisions with reference to the sales also applies judgement in determining agreements and supporting documentation. the gain or loss on disposal.

The Audit Committee’s consideration of Our application of materiality person, relying on the financial statements, the above risks is set out on page 56. We apply the concept of materiality would be changed or influenced. both in planning and performing our Our audit procedures relating to these When establishing our overall audit audit, and in evaluating the effect of matters were designed in the context of strategy, we determined planning misstatements on our audit and on the our audit of the financial statements as a materiality for the Group to be £15 million, financial statements. For the purposes whole, and not to express an opinion on which is approximately 8% of underlying of determining whether the financial individual accounts or disclosures. Our profit before tax. We use underlying statements are free from material opinion on the financial statements is not profit before tax to exclude the effect misstatement we define materiality as modified with respect to any of the risks of volatility (for example, separately the magnitude of misstatement that described above, and we do not express disclosed non-underlying items) from our makes it probable that the economic an opinion on these individual matters. determination and as it represents a key decisions of a reasonably knowledgeable performance measure for the Group.

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An overview of the scope of our audit • we have not received all the information Our responsibility is to audit and express Our Group audit was scoped by obtaining and explanations we require for our an opinion on the financial statements an understanding of the Group and its audit; or in accordance with applicable law and environment, including group-wide controls, • adequate accounting records have not International Standards on Auditing and assessing the risks of material been kept by the Parent Company, or (UK and Ireland). Those standards require misstatement at the group level. Based on returns adequate for our audit have not us to comply with the Auditing Practices that assessment, we focused our Group been received from branches not visited Board’s Ethical Standards for Auditors. audit scope primarily on the audit work at by us; or We also comply with International the most significant operating companies • the Parent Company financial Standard on Quality Control 1 (UK and where either full or specified audit statements are not in agreement with Ireland). Our audit methodology and tools procedures were carried out based on the accounting records and returns. aim to ensure that our quality control our assessment of the identified risks of procedures are effective, understood and We have nothing to report in respect material misstatement identified above. applied. Our quality controls and systems of these matters. The remaining operating companies were include our dedicated professional subject to analytical review procedures Directors’ remuneration standards review team, strategically designed to confirm that no further risks Under the Companies Act 2006 we are focused second partner reviews and of misstatement existed that were also required to report if in our opinion independent partner reviews. material to the Group financial statements. certain disclosures of Directors’ This report is made solely to the remuneration have not been made or Operating companies representing the Company’s members, as a body, in the part of the 2013 Remuneration Report principal business units within the Group’s accordance with Chapter 3 of Part 16 of to be audited is not in agreement with reportable segments and accounting for the Companies Act 2006. Our audit work the accounting records and returns. 80% of the Group’s revenue are subject to has been undertaken so that we might Under the Listing Rules we are required full audit procedures with those accounting state to the Company’s members those to review certain elements of the 2013 for 7% of the Group’s revenue subject to matters we are required to state to them Remuneration Report. We have nothing specified audit procedures. Analytical in an auditor’s report and for no other to report arising from these matters or review procedures were carried out at the purpose. To the fullest extent permitted remaining operating companies accounting our review. by law, we do not accept or assume for 13% of the Group’s revenue. The Corporate Governance Statement responsibility to anyone other than the coverage of our audit procedures as a Under the Listing Rules we are also Company and the Company’s members as percentage of the revenue of each required to review the part of the a body, for our audit work, for this report, reportable segment is similar. Corporate Governance Statement relating or for the opinions we have formed. The Group audit team follow a programme to the Company’s compliance with of planned visits to the significant operating nine provisions of the UK Corporate Scope of the audit of the financial companies. The Senior Statutory Auditor or Governance Code. We have nothing statements another senior member of the Group audit to report arising from our review. An audit involves obtaining evidence team visited operating companies covering about the amounts and disclosures in the 77% of Group revenue in the year. The Our duty to read other information financial statements sufficient to give Senior Statutory Auditor or another senior in the Annual Report reasonable assurance that the financial member of the Group audit team also Under the International Standards and statements are free from material discussed the risk assessment, reviewed Auditing (UK and Ireland), we are required misstatement, whether caused by fraud documentation of key findings and to report to you if, in our opinion, or error. This includes an assessment of: participated in the close meetings for all information in the Annual Report is: whether the accounting policies are operating companies subject to full scope. • materially inconsistent with the appropriate to the Group’s and the Parent Company’s circumstances and have At the parent entity level we also tested information in the audited financial been consistently applied and adequately the consolidation process and carried out statements; or disclosed; the reasonableness of analytical procedures to confirm our • apparently materially incorrect based significant accounting estimates made by conclusion that there were no significant on, or materially inconsistent with, our the Directors; and the overall presentation risks of material misstatement of the knowledge of the Group acquired in of the financial statements. In addition, aggregated financial information of the the course of performing our audit; or remaining components not subject to audit • is otherwise misleading. we read all the financial and non-financial or audit of specified account balances. information in the Annual Report to identify In particular, we are required to consider material inconsistencies with the audited Opinion on other matters prescribed whether we have identified any financial statements and to identify any by the Companies Act 2006 inconsistencies between our knowledge information that is apparently materially In our opinion: acquired during the audit and the incorrect based on, or materially Directors’ statement that they consider inconsistent with, the knowledge acquired • the part of the 2013 Remuneration the Annual Report is fair, balanced and by us in the course of performing the audit. Report to be audited has been properly understandable and whether the Annual If we become aware of any apparent prepared in accordance with the Report appropriately discloses those material misstatements or inconsistencies Companies Act 2006; and matters that we communicated to the we consider the implications for our report. • the information given in the Strategic Audit Committee which we consider Report and the Directors’ Report for the should have been disclosed. We confirm financial year for which the financial that we have not identified any such statements are prepared is consistent inconsistencies or misleading statements. with the financial statements. Respective responsibilities of Directors John Adam Matters on which we are required and auditor Senior Statutory Auditor to report by exception As explained more fully in the Directors’ For and on behalf of Deloitte LLP Adequacy of explanations received Responsibilities Statement, the Directors Chartered Accountants and accounting records are responsible for the preparation of the and Statutory Auditor Under the Companies Act 2006 we are financial statements and for being satisfied London, United Kingdom 5 March 2014 required to report to you if, in our opinion: that they give a true and fair view.

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For the year ended 31 December 2013 Group Income Statement

2013 2012 2,3 Non- Non- underlying underlying Underlying items Underlying items items1 (Note 10) Total items1 (Note 10) Total Notes £m £m £m £m £m £m Continuing operations Revenue including share of joint ventures and associates 10,118 – 10,118 9,966 – 9,966 Share of revenue of joint ventures and associates 18.2 (1,373) – (1,373) (1,310) – (1,310) Group revenue 4 8,745 – 8,745 8,656 – 8,656 Cost of sales (7,882) – (7,882) (7,667) – (7,667) Gross profit 863 – 863 989 – 989 Gain on disposals of interests in investments 32.3/32.4 82 – 82 52 – 52 Amortisation of acquired intangible assets 16 – (30) (30) – (39) (39) Other net operating expenses (813) (125) (938) (849) (91) (940) Group operating profit/(loss) 132 (155) (23) 192 (130) 62 Share of results of joint ventures and associates 18.2 71 – 71 92 – 92 Profit/(loss) from operations 6 203 (155) 48 284 (130) 154 Investment income 8 65 – 65 62 – 62 Finance costs 9 (81) – (81) (69) – (69) Profit/(loss) before taxation 187 (155) 32 277 (130) 147 Taxation 11 (50) 35 (15) (61) 35 (26) Profit/(loss) for the year from continuing operations 137 (120) 17 216 (95) 121 (Loss)/profit for the year from discontinued operations 12 (15) (37) (52) 15 (101) (86) Profit/(loss) for the year 122 (157) (35) 231 (196) 35 Attributable to Equity holders 122 (157) (35) 231 (196) 35 Non-controlling interests – – – – – – Profit/(loss) for the year 122 (157) (35) 231 (196) 35

1 Before non-underlying items (Notes 2.11 and 10). 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

2013 2012 2,3 Notes Pence Pence Basic earnings/(loss) per ordinary share – continuing operations 13 2.5 17.9 – discontinued operations 13 (7.6) (12.6) 13 (5.1) 5.3 Diluted earnings/(loss) per ordinary share – continuing operations 13 2.5 17.9 – discontinued operations 13 (7.6) (12.6) 13 (5.1) 5.3 Dividends per ordinary share proposed for the year 14 14.1 14.1

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

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Commentary on the Group In Professional Services reductions in Significant other non-underlying items Income Statement* Australia were largely mitigated by included a £52m curtailment charge from improvements in the US. Excluding closing the defined benefit section of the Total underlying profit from the impact of currency, revenue from Balfour Beatty pension scheme to future continuing operations for 2013 continuing operations including joint accrual for the majority of members and was £203m. The total loss after ventures and associates increased by 1%. £52m of restructuring costs. Restructuring tax including discontinued costs are mainly due to the planned Gain on disposal of investments restructuring of the UK construction operations was £35m. The Group continued its programme business where six business units were of realising accumulated value in the Background integrated into three business streams Infrastructure Investments portfolio and The Group income statement includes £14m, and restructuring in Australia as generating income by disposing of its the majority of the Group’s income and a result of the severe market downturn interest in two Consort Healthcare expenses for the year with the remainder £20m. The creation of the professional hospitals, four Transform Schools education being recorded within the statement of services shared service centre in projects and partially disposing of its comprehensive income. The Group’s Lancaster, Pennsylvania cost £10m. interest in two Connect Roads highway income statement is presented showing projects resulting in a net underlying gain Net finance costs the Group’s underlying and non-underlying of £82m after recycling £21m from Net finance costs of £16m increased by results separately on the face of reserves to the income statement. £9m primarily resulting from the US the income statement to assist in private placement in March 2013. understanding the underlying financial Share of results of joint ventures performance achieved by the Group. and associates Taxation In 2013 the income statement has been Joint ventures and associates are those The underlying tax charge for continuing presented on a continuing basis. The post entities over which the Group exercises operations excluding the Group’s share of tax results of certain Mainland European joint control or has significant influence the results of joint ventures and associates rail businesses and the UK facilities and whose results are generally of £50m equates to an effective tax rate management business, Balfour Beatty incorporated using the equity method of 43.1% (2012: 33.0%). This increase WorkPlace (BBW), which are classified whereby the Group’s share of the post-tax is due to the impact of unrelieved losses as discontinued operations, are results of joint ventures and associates is and changes in tax legislation. presented in a single line “(Loss)/profit for included in the Group’s operating profit. (Loss)/profit from discontinued the year from discontinued operations”. Underlying profit from operations operations The prior year numbers have been Underlying profit from continuing (Loss)/profit from discontinued operations re-presented accordingly. operations decreased by 28% to £203m shows the post tax results relating to In addition, the Group restated the prior from £284m in 2012. Support Services and certain Mainland European rail businesses year income statement as a result of Investments delivered excellent operating and BBW, which are classified as adopting IAS 19 Employee Benefits results, including the benefit of £82m of discontinued operations. (Revised) in 2013, increasing the prior year’s gains from the above disposals. However, In December we completed the sale of total net interest cost by £10m. Previously overall profits reduced as a result of a BBW for a net cash consideration of the net pension finance charge was significant drop in mining related capital £155m. After transaction costs and other expenditure in Australia impacting the calculated by applying an expected rate charges the disposal resulted in a non- professional services business. In addition, of return to the pension assets and the underlying gain of £16m. BBW contributed a combination of a difficult external AA corporate bond discount rate to £19m (2012: £22m) to underlying profit environment and an internal reorganisation the pension liabilities. IAS 19 Revised from discontinued operations. calculates the net pension finance charge in our UK construction business caused by applying the AA corporate bond a shortfall in expected profits. There was a disappointing performance discount rate to the net pension surplus in Mainland European rail mainly due to or deficit. The AA corporate bond rate is Non-underlying items underperformance in Germany resulting in normally lower than the expected return Non-underlying items are items of an underlying loss from operations of £26m on assets and so the effect is to give a financial performance which the Group (2012: profit of £2m). Non-underlying costs higher net finance charge. believes should be separately identified on of £51m included £38m for writing down the face of the income statement to assist the goodwill in the German rail business Revenue in understanding the underlying financial to £nil, a loss on disposal of the Spanish Revenue from continuing operations performance achieved by the Group. business of £4m, a loss on disposal of the including joint ventures and associates Non-underlying items from continuing Stassfurt Signalling Workshop of £1m, increased by 2% to £10,118m from operations of £155m before tax were rail restructuring costs of £6m and a £2m £9,966m in 2012. Revenue was broadly charged to the income statement. regulatory fine in Germany. flat across all segments albeit there These comprised amortisation of was a change in the geographical mix. Earnings per share (EPS) acquired intangible assets of £30m and In Construction Services, a 12% Basic EPS from continuing operations other items of £125m. The amortisation improvement in the US was offset by was 2.5p, down 86% as a result of lower charge declined in the year as some a corresponding reduction in the UK. profits as discussed above. Underlying acquired intangible assets became EPS from continuing operations was fully amortised. * The commentary is unaudited and forms part of the 20.0p (2012: 31.7p). Chief Financial Officer’s Review on pages 24–27. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 90

For the year ended 31 December 2013 Group Statement of Comprehensive Income

2013 20122,4 Notes £m £m (Loss)/profit for the year (35) 35 Other comprehensive (expense)/income for the year Items which will not subsequently be reclassified to the income statement Actuarial losses on retirement benefit liabilities 30.1 (114) (115) Tax on above 30.1 17 18 (97) (97) Items which will subsequently be reclassified to the income statement Currency translation differences 30.1 (14) (56) Fair value revaluations – PPP financial assets 30.1 (192) 405 – cash flow hedges 30.1 120 (19) – available-for-sale investments in mutual funds 19.1/30.1 7 4 Recycling of revaluation reserves to the income statement on disposal 32.3/32.4 (21) (48) Tax on above 30.1 20 (90) (80) 196 Total other comprehensive (expense)/income for the year (177) 99 Total comprehensive (expense)/income for the year 30.1 (212) 134 Attributable to Equity holders (212) 134 Non-controlling interests – – Total comprehensive (expense)/income for the year 30.1 (212) 134

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 4 Re-presented to reflect the recycling of revaluation reserves to the income statement in the statement of comprehensive income instead of the statement of changes in equity.

Commentary on Items which will subsequently be which are exposed by their long-term Group Statement of reclassified to the income statement contractual agreements. The fair value Comprehensive Income* Currency translation differences of derivatives constantly changes in The Group operates in a number of response to prevailing market conditions. Total comprehensive expense countries with different local currencies. During the year LIBOR increased resulting for 2013 was £212m comprising Currency translation differences arise in a fair value gain on the interest rate a total loss after tax including on translation of the balance sheet swaps of £120m being recognised in discontinued operations of and results from the local functional OCI in 2013 (2012: £19m loss). currency into the Group’s presentational Available-for-sale investments £35m and other comprehensive currency, sterling. in mutual funds expense after tax of £177m. Fair value revaluations – The available-for-sale investments in Background PPP financial assets mutual funds comprise holdings in a The Statement of Comprehensive Income Assets constructed by PPP concession number of funds, based on employees’ (OCI) is presented on a total Group basis companies are classified principally as investment elections, in respect of the combining continuing and discontinued available-for-sale financial assets. In the deferred compensation obligations operations. operational phase fair value is determined of the Group as disclosed in Note 28. by discounting the future cash flows OCI is categorised into items which will The fair value of the available-for-sale allocated to the financial asset using affect the profit and loss of the Group in investments is £60m determined by discount rates based on long-term subsequent periods when the gain or loss the market price of each fund at the gilt rates adjusted for the risk levels is realised and those which will not be reporting date. associated with the assets, with market recycled into the income statement. related fair value movements recognised Recycling of revaluation reserves Items which will not subsequently be in OCI and other fair value movements to the income statement on disposal reclassified to the income statement recognised in the income statement. Fair value gains and losses relating to Actuarial movements on retirement During the year there was an increase in the PPP financial assets and derivatives benefit liabilities are increases or gilt rates resulting in a fair value loss of recognised in OCI are transferred to the decreases in the present value of the £192m being taken through OCI. In 2012 income statement upon disposal of the pension liability because of: the fair value of the financial assets asset and therefore on disposal of eight included a significant uplift due to the Infrastructure Investments’ concessions, • differences between the previous M25 reaching construction completion £21m was recycled to the income actuarial assumptions and what has and being fair valued for the first time. statement through OCI and is included actually occurred in the gain on disposal. There is no Fair value revaluations – associated tax on the amounts recycled • changes in actuarial assumptions used cash flow hedges to the income statement. to value the obligations. Cash flow hedges are principally interest Actuarial losses for the Group including rate swaps, to manage the interest rate joint ventures and associates decreased and inflation rate risks in the Group’s from £115m in 2012 to £114m in 2013. Infrastructure Investments’ subsidiary, joint venture and associate companies Refer to Note 28. * The commentary is unaudited and forms part of the Chief Financial Officer’s Review on pages 24–27. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 91

For the year ended 31 December 2013 Group Statement of CHANGES in EQUITY

Share of joint ventures’ and Called-up Share associates’ Other Non- share premium Special reserves reserves Retained controlling capital account reserve (Note 18.5)2,4 (Note 30.1) 5 profits2,4 interests Total2,4 Notes £m £m £m £m £m £m £m £m At 1 January 20122 344 61 27 144 328 359 4 1,267 Total comprehensive income/(expense) for the year 4 30.1 – – – 323 (37) (152) – 134 Ordinary dividends 14 – – – – – (96) (1) (97) Joint ventures’ and associates’ dividends 18.1 – – – (58) – 58 – – Issue of ordinary shares 29.1 – 2 – – – – – 2 Movements relating to share-based payments – – – – (2) 9 – 7 Other reserve transfers relating to joint venture and associate disposals4 30.1 – – – (72) – 72 – – Other transfers – – (2) – – 2 – – At 31 December 2012 344 63 25 337 289 252 3 1,313 Total comprehensive (expense)/income for the year 30.1 – – – (17) 11 (206) – (212) Ordinary dividends 14 – – – – – (96) (1) (97) Joint ventures’ and associates’ dividends 18.1 – – – (47) – 47 – – Issue of ordinary shares 29.1 – 1 – – – – – 1 Issue of convertible bonds 29.2.2 – – – – 26 – – 26 Movements relating to share-based payments – – – – (1) 5 – 4 Other reserve transfers relating to joint venture and associate disposals 18.5 – – – 3 – (3) – – Other transfers – – (1) 2 (2) 1 – – At 31 December 2013 344 64 24 278 323 – 2 1,035

Commentary on Group Joint venture’ and associates’ dividends merger reserve £249m (2012: £249m); Statement of Changes in Equity* Dividends of £47m were received in the and other reserves £22m (2012: £18m). year from joint ventures and associates Total equity holders funds of (JVA) resulting in a transfer of this amount Equity component of convertible bonds £1,035m at 31 December 2013 between JVA reserves and Group On 3 December the Group issued decreased by 21% primarily retained profit. convertible bonds for net proceeds of £246m. The convertible bonds are due to movements in other Share issues compound instruments comprising both comprehensive income and During the year 657,281 ordinary shares equity and liability components. The fair the payment of dividends. were issued for £1.4m of which £1.1m value of the liability component was was share premium. £220m, estimated using the prevailing Background market rate at the date of issue for a The Statement of Changes in Equity Special reserve similar non-convertible instrument. includes the total comprehensive income A special reserve of £185m was created The equity component of £26m is the attributable to equity holders of the in 2004 as a result of cancelling £181m difference between the net proceeds and Company and non-controlling interests of share premium and cancelling the the fair value of the liability component and also discloses transactions which £4m capital redemption reserve in representing the embedded option to have been recognised directly in equity Balfour Beatty plc. This was approved convert the bonds into the Company’s and not through the income statement. by the court and becomes distributable ordinary shares. to the extent of future increases in Dividends share capital and share premium, of Other reserve transfers relating to The Board has recommended a final which £1m occurred in 2013 (2012: £2m). joint venture and associate disposals dividend of 8.5p in respect of 2013 in On disposal of JVAs, retained profits line with the prior year’s final dividend, Other reserves relating to these businesses are transferred resulting in a full-year dividend of 14.1p Other reserves comprises: the equity from the JVA reserves to the Group’s (2012: 14.1p). The full-year dividend paid components of the preference shares and retained profits. during 2013 equated to £96m. Underlying convertible bonds £44m (2012: £17m); the dividend cover from continuing operations, Group’s hedging reserves £(56)m (2012: taking into account PPP disposal gains, £(109)m); PPP financial asset revaluation for 2013 is 1.4 times. reserve £56m (2012: £93m); currency * The commentary is unaudited and forms part of the translation reserve £8m (2012: £21m); Chief Financial Officer’s Review on pages 24–27. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 92

For the year ended 31 December 2013 Company Income Statement

2013 2012 Non- Non- underlying underlying Underlying items Underlying items items1 (Note 10) Total items1 (Note 10) Total Notes £m £m £m £m £m £m Revenue 4 97 – 97 130 – 130 Net operating expense (19) (3) (22) (24) (2) (26) Profit/(loss) from operations 78 (3) 75 106 (2) 104 Investment income 8 5 – 5 6 – 6 Finance costs 9 (42) – (42) (35) – (35) Profit/(loss) before taxation 41 (3) 38 77 (2) 75 Taxation 11 4 (3) 1 8 1 9 Profit/(loss) for the year attributable to equity holders 45 (6) 39 85 (1) 84

1 Before non-underlying items (Notes 2.11 and 10).

For the year ended 31 December 2013 C ompany Statement of Comprehensive Income 2013 2012 Notes £m £m Profit for the year 39 84 Other comprehensive (expense)/income for the year Items which will not subsequently be reclassified to the income statement Actuarial movements on retirement benefit liabilities 1 (3) Tax on above 27.3 (1) 1 – (2) Items which will subsequently be reclassified to the income statement Currency translation differences (1) – Tax on share based payments transferred (2) – Tax on preference shares due to change in rate 27.3 1 – (2) – Total other comprehensive expense for the year (2) (2) Total comprehensive income for the year attributable to equity holders 30.2 37 82

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For the year ended 31 December 2013 C ompany Statement of Changes in Equity

Called-up Share Other share premium Special reserves Retained capital account reserve (Note 28.2)5 profits Total Notes £m £m £m £m £m £m At 1 January 2012 344 61 27 340 333 1,105 Total comprehensive income for the year 30.2 – – – – 82 82 Ordinary dividends 14 – – – – (96) (96) Issue of ordinary shares 29.1 – 2 – – – 2 Movements relating to share-based payments – – – (2) 5 3 Other transfers – – (2) – 2 – At 31 December 2012 344 63 25 338 326 1,096 Total comprehensive income for the year 30.2 – – – 1 36 37 Ordinary dividends 14 – – – – (96) (96) Issue of ordinary shares 29.1 – 1 – – – 1 Issue of convertible bonds 29.3 – – – 26 – 26 Movements relating to share-based payments – – – (3) 4 1 Other transfers – – (1) – 1 – At 31 December 2013 344 64 24 362 271 1,065

5 Re-presented to amalgamate the equity component of preference shares into other reserves.

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At 31 December 2013 Balance Sheets

Group Company 2013 20122 2013 2012 Notes £m £m £m £m Non-current assets Intangible assets – goodwill 15 1,048 1,160 – – – other 16 204 212 – – Property, plant and equipment 17 208 247 – – Investments in joint ventures and associates 18 666 726 – – Investments 19 95 94 1,567 1,937 PPP financial assets 20 455 542 – – Trade and other receivables 23 113 100 17 23 Deferred tax assets 27 122 116 – – Derivative financial instruments 39 – – – – 2,911 3,197 1,584 1,960 Current assets Inventories and non-construction work in progress 21 135 172 – – Due from construction contract clients 22 631 634 – – Trade and other receivables 23 1,190 1,241 1,262 1,152 Cash and cash equivalents – PPP subsidiaries 26 65 25 – – – other 26 539 517 – 43 Current tax assets 8 4 – – Derivative financial instruments 39 2 1 4 2 2,570 2,594 1,266 1,197 Assets held for sale 12 231 – – – 2,801 2,594 1,266 1,197 Total assets 5,712 5,791 2,850 3,157 Current liabilities Due to construction contract clients 22 (360) (382) – – Trade and other payables 24 (2,046) (2,214) (1,337) (1,464) Provisions 25 (100) (116) – – Borrowings – non-recourse loans 26 (9) (12) – – – other 26 (170) (477) (106) (466) Current tax liabilities (33) (42) – – Derivative financial instruments 39 (19) (20) (6) (2) (2,737) (3,263) (1,449) (1,932) Liabilities held for sale 12 (219) – – – (2,956) (3,263) (1,449) (1,932) Non-current liabilities Trade and other payables 24 (182) (159) (25) (25) Provisions 25 (93) (112) (1) (5) Borrowings – non-recourse loans 26 (410) (381) – – – other 26 (435) (5) (212) – Liability component of preference shares 29 (94) (92) (94) (92) Retirement benefit liabilities 28 (434) (333) – (6) Deferred tax liabilities 27 (18) (10) (3) – Derivative financial instruments 39 (55) (123) (1) (1) (1,721) (1,215) (336) (129) Total liabilities (4,677) (4,478) (1,785) (2,061) Net assets 1,035 1,313 1,065 1,096 Equity5 Called-up share capital 29 344 344 344 344 Share premium account 30 64 63 64 63 Special reserve 30 24 25 24 25 Share of joint ventures’ and associates’ reserves 30 278 337 – – Other reserves5 30 323 289 362 338 Retained profits 30 – 252 271 326 Equity attributable to equity holders of the parent 1,033 1,310 1,065 1,096 Non-controlling interests 30 2 3 – – Total equity 1,035 1,313 1,065 1,096

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 5 Re-presented to amalgamate the equity component of preference shares into other reserves.

On behalf of the Board Steve Marshall Duncan Magrath Director Director 5 March 2014

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Commentary on the Group Working capital members ceasing to accrue future defined Balance Sheet * Net movements in working capital are benefits and becoming deferred members. discussed in the statement of cash flows Refer to Note 28 for further details. Total assets of £5.7bn were 1% commentary on page 97. less than last year. Total liabilities Any surplus of deficit contributions would Provisions are discussed in the working be recoverable by way of a reduction in of £4.7bn increased by 4% capital commentary and in detail in future contributions as the Group has the primarily due to the increase in Note 25. ability to use surplus funds in the defined the pension deficit during the year. benefit section of the BBPF to pay its Borrowings contributions due under the defined Background Borrowings excluding non-recourse benefit and defined contribution sections The Group’s balance sheet shows the loans of the BBPF. Group’s assets and liabilities as at 31 The Group’s principal committed facilities December 2013. In accordance with IAS 1 total £950m and extend through to 2016. Assets and liabilities held for sale Presentation of Financial Statements and The purpose of these facilities, and some Refer to Note 12 for an analysis of assets IFRS 5 Non-current Assets Held for Sale other smaller facilities, is to provide and liabilities relating to the discontinued and Discontinued Operations, the Group liquidity from a group of core relationship operations at the year end. The Group is does not re-present the prior year balance banks to support Balfour Beatty in its continuing negotiations with interested sheet for discontinued operations or activities. However, as the Group’s parties and does not consider the value disposals. Instead, at December 2013, business has evolved over time, Balfour of the remaining Mainland European rail all assets and liabilities relating to the Beatty has diversified its sources of businesses to be impaired at the year end. discontinued operations are no longer funds away from the bank market. consolidated line by line in the Group’s Other As part of that process, in March 2013 the balance sheet but shown within assets In addition to the liabilities on the Company issued notes in a US$350m US held for sale or liabilities held for sale. balance sheet, in the normal course of private placement with an average coupon This should be borne in mind when its business, the Group arranges for of 4.94% per annum and an average making year-on-year comparisons. financial institutions to provide clients maturity of 9.3 years. The incremental with guarantees in connection with its Goodwill annual cost of this funding is contracting activities, commonly referred The goodwill on the Group’s balance approximately £9m. to as bonds. These bonds provide a client sheet at 31 December 2013 decreased to In December the Group issued £253m of with a level of financial protection in the £1,048m (2012: £1,160m). £64m of this unsecured convertible bonds due 2018 at event that a contractor fails to meet its reduction was due to the disposal of a coupon of 1.875% per annum. The commitments under the terms of a Balfour Beatty WorkPlace with a further incremental annual cost in the income contract. They are customary or £38m reduction due to an impairment in statement of this funding is approximately mandatory in many of the markets in respect of Rail Germany. £8m. The proceeds from these new funds which the Group operates. In return for issuing the bonds, the financial institutions Impairment reviews have been carried were used in the first instance to repay receive a fee and a counter indemnity out on all goodwill. No goodwill, other borrowings under the committed facilities. from the Company. As at 31 December than Rail Germany mentioned above, Non-recourse loans 2013, contract bonds in issue by financial was impaired. In addition, the Group has non-recourse institutions under uncommitted facilities facilities in companies engaged in PPP Investments in joint ventures and covered £2.8bn (2012: £3.3bn) of the projects and infrastructure investments. associates contract commitments of the Group. Investments in joint ventures and At 31 December 2013, the Group’s share Equity commitments associates decreased during the year of non-recourse net borrowings amounted During 2013 the Group invested £48m primarily due to the disposal of to £1,953m (2012: £2,122m), comprising (2012: £55m) in a combination of equity Infrastructure Investments joint ventures. £1,599m (2012: £1,754m) in relation to and shareholder loans to Infrastructure joint ventures and associates as disclosed Investments’ project companies and at PPP financial assets in Note 18.2 and £354m (2012: £368m) the end of the year had committed to The £87m decrease in the PPP financial on the Group balance sheet in relation provide a further £137m from 2014 assets is principally driven by the part to subsidiaries as disclosed in Note 26. onwards, inclusive of £50m expected for disposal of Connect CNDR Holdings Ltd two projects at preferred bidder stage. and the reduction in the fair value of the Retirement benefit liabilities £73m of this is expected to be invested remaining financial assets due to a rise The Group’s balance sheet includes in 2014. in discount rates resulting from a rise aggregate liabilities ie deficits of £434m in gilt rates. (2012: £333m restated for IAS 19 Revised) in the Group’s pension schemes. The retirement liabilities increased primarily due to an increase in the inflation assumptions and a £52m curtailment charge resulting from the majority of the Balfour Beatty Pension Fund’s (BBPF)

* The commentary is unaudited and forms part of the Chief Financial Officer’s Review on pages 24–27. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 96

For the year ended 31 December 2013 Statements of Cash Flows

Group Company 2013 20126 2013 20126 Notes £m £m £m £m Cash flows from operating activities Cash (used in)/generated from: – continuing operations – underlying1,6 31.1 (83) (175) 208 (76) – non-underlying6 31.1 (75) (44) (3) (3) – discontinued operations6 31.1 (4) – – – Income taxes paid (13) (19) – – Net cash (used in)/from operating activities (175) (238) 205 (79) Cash flows from investing activities Dividends received from – joint ventures and associates 18.4 47 58 6 3 – discontinued operations 1 – – – – subsidiaries – – – 4 Interest received 28 33 3 3 Acquisition of businesses, net of cash and cash equivalents acquired 32.1 (14) (4) – – Purchases of: – intangible assets – other 16 (38) (25) – – – property, plant and equipment 17 (82) (49) – – – other investments 19 (12) (5) – – Investments in and loans to joint ventures and associates 18.4 (51) (39) – – Loans repaid to joint ventures and associates 18.4 2 12 – – PPP financial assets cash expenditure7 20 (62) (67) – – PPP financial assets cash receipts7 20 59 45 – – Disposals of: – investments in joint ventures 18.4 103 81 – – – subsidiaries net of cash disposed and transaction costs 32.3.11 152 – – – – property, plant and equipment – underlying1 11 21 – – – property, plant and equipment – non-underlying 8 – – – – other investments 19 20 9 – – Net cash from investing activities 172 70 9 10 Cash flows from financing activities Purchase of ordinary shares 30.3 (2) (3) – – Proceeds from: – issue of ordinary shares 29.1 1 2 1 2 – convertible bonds 29.3 246 – – – – US private placement 31.4 231 – 231 – – other new loans 31.3 110 350 – 230 – finance leases 31.3 1 – – – Repayment of: – loans 31.3 (408) (53) (410) (32) – finance leases 31.3 (2) (4) – – Ordinary dividends paid 14 (96) (96) (96) (96) Other dividends paid – non-controlling interest 14 (1) (1) – – Interest paid (56) (47) (22) (13) Preference dividends paid (11) (11) (11) (11) Net cash from financing activities 13 137 (307) 80 Net increase/(decrease) in cash and cash equivalents 31.3 10 (31) (93) 11 Effects of exchange rate changes 3 (17) – – Cash and cash equivalents at beginning of year 532 580 (13) (24) Reclassified to assets held for sale 12 (19) – – – Cash and cash equivalents at end of year 31.2 526 532 (106) (13)

1 Before non-underlying items (Notes 2.11 and 10). 6 Re-presented to separately identify cashflows from underlying and non-underlying continuing operations and discontinued operations. 7 Re-presented to separately identify PPP financial assets cash inflows and outflows which were previously disclosed in Note 20.

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Commentary on the Group Operating trade and other receivables purchased during the year, £71m relates Statement of Cash Flows* During 2013 there was a £166m increase to continuing operations and relates to: in operating trade and other receivables the purchase of plant and equipment Cash and cash equivalents for continuing operations primarily due £39m; capitalisation of leasehold decreased by 1% during the to new contract wins in Construction improvements £20m mainly relating to the year to £526m. Cash used in Services US which is in line with its new professional services shared service operating activities decreased increased revenue in the second half centre, and the refit of our New York of 2013. headquarters; and assets in course of by 26% to £175m. construction £12m, the majority of which Amounts due to construction relates to investment projects in the US. Background contract clients The statement of cash flows shows the During 2013 there was a £33m increase The Group disposed of interests in seven cash flows from operating, investing and in amounts due to construction contract PPP joint ventures and one infrastructure financing activities during the year. clients for continuing operations due joint venture during the year for £102m. to the lifecycle of some projects in In addition the Group partially disposed Working capital Professional Services and Construction of one PPP subsidiary for £26m, retaining Working capital includes: inventories and Services US. an interest in the entity as a joint venture. non-construction work in progress; The Group also disposed of Balfour Beatty amounts due to and from construction Operating trade and other payables WorkPlace, the UK facilities management contract clients; operating trade and other During 2013 there was a £106m increase business (BBW), Rail Spain and receivables; operating trade and other in operating trade and other payables for Stassfurt Signalling Workshop for a net payables; and operating provisions. continuing operations primarily due to new consideration of £152m, of which £146m Where the net working capital balance is contract wins in the second half of the relates to the disposal of BBW being in an asset position, ie the inventory and year for Construction Services US in line consideration of £155m less transaction receivables balances are greater than the with increased cost of sales. costs and cash disposed of £9m. payables and provisions, this is referred Operating provisions to as “positive working capital”. Where Cash flows from financing activities During 2013 there was a £14m decrease this is not the case this is referred to The Group diversified its borrowings in operating provisions for continuing as “negative working capital”. in the year by entering into a US private operations primarily due to utilising placement in March 2013 for US$350m, restructuring provisions during the year. Working capital movements (£231m) and in December 2013, the Refer to Note 25. The movement of the individual Group issued convertible bonds for net working capital balances on the balance Cash used in operations proceeds of £246m. These funds were sheet will not be reflective of the actual Underlying cash used in continuing used in the first instance to repay movement of working capital in the year operations of £83m (2012: £175m) was borrowings under committed facilities. because the December 2013 balances impacted by a working capital outflow exclude amounts relating to discontinued Ordinary dividends of £96m were of £129m (2012: £339m) and pension operations and disposals whereas the declared and paid during the year and deficit payments of £57m (2012: £61m). prior year balances include these balances. preference dividends of £11m were paid. Non-underlying cash used in continuing Working capital movements are disclosed Cash and cash equivalents operations was £75m (2012: £44m) after in Note 31.1. Cash and cash equivalents decreased adjusting for the following non-cash items: from £532m to £526m excluding the Inventories and non-construction work a £51m (2012: £44m) pension curtailment project cash held in a jointly controlled in progress charge resulting from ceasing to accrue operation which is classified within assets During 2013 movement on inventories and future defined benefits for the majority held for sale. non-construction work in progress was of the Balfour Beatty Pension Fund’s broadly flat with a £5m decrease for members and amortisation of acquired continuing operations. intangible assets £30m (2012: £39m). Amounts due from construction Cash used in discontinued operations was contract clients £4m (2012: £nil) after adjusting for a During 2013 there was a £93m increase non-cash movement relating to goodwill in amounts due for construction contract impairment of £38m (2012: £95m). clients from continuing operations primarily due to a large contract in Cash flows from investing activities Support Services on which work is being The Group received dividends of £47m performed but payment is not made (2012: £58m) from joint ventures and until completion of certain milestones associates during the year. in the project. During the year the Group purchased intangible assets of £38m (2012: £25m) of which £21m (2012: £nil) related to Edinburgh student accommodation. Of the £82m property, plant and equipment

* The commentary is unaudited and forms part of the Chief Financial Officer’s Review on pages 24–27. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 98

financial assets and financial liabilities, Notes to the the de-recognition of financial instruments and hedge accounting. Financial Statements The requirements of IFRS 9 in issue as at 31 December 2013 would result in the Group’s PPP financial assets being reclassified from “available-for-sale”, which is a category that would no longer exist under the current new standard, to a debt instrument measured either at amortised cost or at fair value through profit or loss. Assuming the Group adopts the fair value through profit or loss option, movements in the fair value of PPP financial assets will no longer be recognised in other comprehensive income. Retrospective application of this 1 Basis of accounting −−IAS 36 Recoverable Amount requirement would result in the closing balance of fair value movements The annual financial statements have Disclosures for Non-financial Assets −−Improvements to IFRSs (2009–2011). recognised in PPP financial asset reserves been prepared on a going concern being transferred to retained earnings. The basis as discussed on page 27 and in Other than IAS 19 Employee Benefits effect within the Group’s reserves would accordance with International Financial (Revised) (IAS 19 Revised), the above be a transfer of £57m from PPP financial Reporting Standards (IFRS) as adopted by new and amended standards do not have asset reserves to retained earnings. The the European Union and therefore comply a material effect on the Group. The effect effect within the share of joint ventures’ with Article 4 of the EU IAS Regulation on the financial statements of adopting and associates’ reserves would be a and with those parts of the Companies IAS 19 Revised is disclosed in Note 38. transfer of £251m from PPP financial Act 2006 that are applicable to companies asset reserves to retained earnings. reporting under IFRS. The Group has Accounting standards not yet adopted applied all accounting standards and by the Group On 28 November 2012 the IASB issued interpretations issued by the International The following accounting standards, an Exposure Draft, Classification and Accounting Standards Board (IASB) interpretations and amendments have Measurement: Limited Amendments to and International Financial Reporting been issued by the IASB but had either IFRS 9, which proposes a new category Interpretations Committee as adopted not been adopted by the European Union for the classification of financial assets by the European Union and effective or were not yet effective in the European and liabilities, “Fair value through other for accounting periods beginning on Union at 31 December 2013: comprehensive income”. Should these 1 January 2013. The Group early • IFRS 9 Financial Instruments proposals be adopted, the Group’s PPP adopted amendments to IAS 36 financial assets will be classified as Recoverable Amount Disclosures • IFRS 10 Consolidated Financial “Fair value through other comprehensive for Non-financial Assets. Statements income” which would not result in a • IFRS 11 Joint Arrangements material change to the current accounting The financial statements have been for the Group’s PPP financial assets. prepared under the historical cost • IFRS 12 Disclosure of Interests in convention, except as described Other Entities 2.2 Re-presentation of comparative under Note 2.26. The functional and information presentational currency of the Company • IFRIC 21: Levies IAS 19 Revised and the presentational currency of the • Amendments to the following All primary statements have been restated Group is sterling. standards: to reflect the effects of adopting IAS 19 −−IFRS 10, IFRS 11 and IFRS 12: Revised affecting net finance costs, 2 Principal accounting policies Investment Entities taxation, actuarial movements, retirement −−IFRS 10, IFRS 11 and IFRS 12: benefit liabilities, deferred tax assets and 2.1 Accounting standards Transition Guidance opening retained profits. Refer to Note 38. Adoption of new and revised −−IAS 19 Employee Benefits: Defined standards Discontinued operations Benefit Plans: Employee The Income Statement has been re- The following accounting standards, Contributions interpretations and amendments have presented to classify certain Mainland −−IAS 27 Separate Financial Statements European rail businesses and the UK been adopted by the Group in the −−IAS 28 Investments in Associates current period: facilities management business as and Joint Ventures discontinued operations. Refer to Notes • IFRS 13 Fair Value Measurement −−IAS 39 Novation of Derivatives and 12 and 38. Continuation of Hedge Accounting • Amendments to the following −−Improvements to IFRSs (2010–2012) Recycling of revaluation reserves standards: −−Improvements to IFRSs (2011–2013). The Statement of Comprehensive Income −−IFRS 1 Government Loans and the Statement of Changes in Equity −−IFRS 7 Financial Instruments: Of these, IFRS 9 is expected to have the have been re-presented to reflect the Disclosures – Offsetting Financial most significant effect. disclosure of recycling of the revaluation Assets and Financial Liabilities IFRS 9 will replace IAS 39 Financial reserves to the Income Statement −−IAS 19 Employee Benefits (Revised) Instruments: Recognition and through other comprehensive income. −−IAS 32 Financial Instruments: Measurement. IFRS 9 in issue as at This was previously shown within the Disclosures – Offsetting Financial 31 December 2013 concerns the Statement of Changes in Equity. Assets and Financial Liabilities classification and measurement of −−IAS 36 Impairment of Assets

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2 Principal accounting policies are adjusted to reflect the changes in their and associates are only recognised to the continued relative interests in the subsidiary. Any extent that the Group is contractually difference between the fair value of the liable for, or has a constructive obligation 2.3 Basis of consolidation consideration paid or received and the to meet, the obligations of the joint The Group financial statements include amount by which the non-controlling ventures and associates. the results of the Company and its interests are adjusted is recognised subsidiaries, together with the Group’s Unrealised gains and losses on directly in equity and attributed to the share of the results of joint ventures and transactions with joint ventures and owners of the parent. associates, drawn up to 31 December associates are eliminated to the extent each year. Accounting policies of subsidiaries are of the Group’s interest in the relevant adjusted where necessary to ensure joint venture or associate. a) Subsidiaries consistency with those used by the Subsidiaries are entities over which the c) Jointly controlled operations Group. All intra-Group transactions, Group has control, being the power to The Group’s share of the results, balances, income and expenses are govern the financial and operating policies assets and liabilities of contracts carried eliminated on consolidation. of the investee entity so as to obtain out in conjunction with another party benefits from its activities. The results b) Joint ventures and associates are included under each relevant of subsidiaries acquired or sold in the Joint ventures are those entities over heading in the income statement year are consolidated from the effective which the Group exercises joint control and balance sheet. date of acquisition to the effective date through a contractual arrangement. of disposal. Associates are entities over which 2.4 Foreign currencies the Group is in a position to exercise Transactions in foreign currencies are The acquisition method of accounting significant influence, but does not recorded at the rate of exchange at the is used to account for the acquisition of control or exercise joint control, through date of the transaction. Monetary assets subsidiaries by the Group. On acquisition, participation in the financial and and liabilities denominated in foreign the assets, liabilities and contingent operating policy decisions of the investee. currencies are translated at the rates liabilities of a subsidiary are measured at of exchange at the reporting date. their fair values at the date of acquisition. The results, assets and liabilities of joint Significant exchange rates used in the Any excess of the fair value of the cost ventures and associates are generally preparation of these financial statements of acquisition over the fair values of incorporated in the financial statements are shown in Note 3. the identifiable net assets acquired is using the equity method of accounting recognised as goodwill. Any deficiency except when classified as held for sale. For the purpose of presenting of the cost of acquisition below the fair The Group may elect to measure some consolidated financial statements, the values of the identifiable net assets of its investments in associates at fair results of foreign subsidiaries, associates acquired (discount on acquisition) is value through profit or loss in accordance and joint venture entities are translated at credited to the income statement in the with IAS 39 where the investment is average rates of exchange for the year, period of acquisition. The interest of held by a Group entity which meets unless the exchange rates fluctuate non-controlling equity holders is stated the classification of a venture capital significantly during that period, in which at the non-controlling equity holders’ organisation, in which case the case the exchange rates at the date proportion of the fair value of the assets investment will be marked to market of transactions are used. Assets and and liabilities recognised. with movements being recognised in liabilities are translated at the rates of the income statement. The equity return exchange prevailing at the reporting date. When the Group loses control of a from the military housing joint ventures Goodwill and fair value adjustments subsidiary, the profit or loss on disposal of Balfour Beatty Investments US is arising on the acquisition of a foreign is calculated as the difference between contractually limited to a maximum level entity are treated as assets and liabilities (i) the aggregate of the fair value of the of return, beyond which Balfour Beatty of the foreign entity and translated at the consideration received and the fair value Investments US does not share in any rates of exchange at the reporting date. of any retained interest less direct costs further return. Currency translation differences arising of the transaction and (ii) the previous are transferred to the Group’s foreign carrying amount of the assets (including Any excess of the fair value of the cost of currency translation reserve and are goodwill), less liabilities of the subsidiary. acquisition over the Group’s share of the recognised in the income statement The fair value of any investment retained fair values of the identifiable net assets on disposal of the underlying investment. in the former subsidiary at the date when of the joint venture or associate entity at control is lost is regarded as the fair value the date of acquisition is recognised as In order to hedge its exposure to certain on initial recognition for subsequent goodwill. Any deficiency of the fair value foreign exchange risks, the Group may accounting under IAS 39 Financial of the cost of acquisition below the enter into forward foreign exchange Instruments: Recognition and Group’s share of the fair values of the contracts. Refer to Note 2.26(c) for Measurement or, when applicable, the identifiable net assets of the joint details of the Group’s accounting cost on initial recognition of an investment venture or associate at the date of policies in respect of such derivative in an associate or jointly controlled entity. acquisition (discount on acquisition) financial instruments. Amounts previously recognised in other is credited to the income statement 2.5 Revenue recognition comprehensive income in relation to the in the period of acquisition. Revenue is measured at the fair value of subsidiary are accounted for in the same Investments in joint ventures and the consideration received or receivable manner as would be required if the associates are initially carried in the for goods and services provided, net of relevant assets or liabilities were disposed balance sheet at cost (including goodwill trade discounts, value added and similar of (i.e. reclassified to profit or loss or arising on acquisition) and adjusted by sales based taxes, after eliminating transferred directly to retained earnings). post-acquisition changes in the Group’s revenue within the Group. Any acquisition or disposal which does not share of net assets of the joint venture result in a change in control is accounted or associate, less any impairment in the for as a transaction between equity value of individual investments. Losses of holders. The carrying amounts of the joint ventures and associates in excess of controlling and non-controlling interests the Group’s interest in those joint ventures

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2 Principal accounting policies provided in Note 5. Further information on believes should be separately identified on continued the business activities of each reportable the face of the income statement to assist segment is set out on pages 28 to 35. in understanding the underlying financial 2.5 Revenue recognition continued performance achieved by the Group. Such Revenue is recognised as follows: Working capital is the balance sheet items will not affect the absolute amount measure reported to the chief operating • revenue from construction and service of the results for the period and the trend decision maker. The profitability measure activities represents the value of work of results. Underlying items are items used to assess the performance of the carried out during the year, including before non-underlying items. Group is underlying profit from operations. amounts not invoiced Non-underlying items include: Segment results represent the contribution • revenue from manufacturing activities of the different segments after the • gains and losses on the disposal of is recognised when title has passed allocation of attributable corporate businesses and investments, unless • interest income is accrued on a time overheads. Transactions between this is part of a programme of releasing basis using the effective interest segments are conducted at arm’s length value from the disposal of similar method by reference to the principal market prices. Segment assets and businesses or investments such outstanding and the effective interest liabilities comprise those assets and as PPP concessions rate, which is the rate that exactly liabilities directly attributable to the • costs of restructuring and reorganisation discounts estimated future cash segments. Corporate assets and liabilities of existing businesses receipts through the expected life include cash balances, bank borrowings, of the financial asset to that asset’s tax balances and dividends payable. • costs of integrating newly acquired net carrying amount businesses Major clients are defined as clients • dividend income is recognised when contributing more than 10% of the • acquisition and similar costs related the equity holder’s right to receive Group’s external revenue. to business combinations such as payment is established. transaction costs 2.8 Pre-contract bid costs and 2.6 Construction and service contracts recoveries • impairment and amortisation charges When the outcome of individual contracts Pre-contract costs are expensed as on intangible assets arising on business can be estimated reliably, contract incurred until it is virtually certain that a combinations (amortisation of acquired revenue and contract costs are recognised contract will be awarded, from which time intangible assets) as revenue and expenses respectively further pre-contract costs are recognised • impairment of goodwill. by reference to the stage of completion as an asset and charged as an expense at the reporting date. over the period of the contract. Amounts These are examples, however, from time recovered in respect of pre-contract costs to time it may be appropriate to disclose Costs are recognised as incurred and that have been written off are deferred further items as non-underlying items revenue is recognised on the basis of the and amortised over the life of the contract. in order to highlight the underlying proportion of total costs at the reporting performance of the Group. Amortisation date to the estimated total costs of For construction and services projects, charges in respect of software are the contract. the relevant contract is the construction included in underlying items. or services contract respectively. With No margin is recognised until the outcome respect to PPP projects, there are 2.12 Taxation of the contract can be estimated with potentially three contracts over which The tax charge comprises current tax and reasonable certainty. the recovered costs could be amortised, deferred tax, calculated using tax rates Provision is made for all known or the concession contract itself, that have been enacted or substantively expected losses on individual contracts the construction contract or the services enacted by the reporting date. Current tax once such losses are foreseen. contract. An assessment is made as to and deferred tax are charged or credited to which contractual element the pre- the income statement, except when they Revenue in respect of variations to contract costs relate to, in order to relate to items charged or credited directly contracts and incentive payments is determine which is the relevant period to equity, in which case the relevant tax is recognised when it is probable it will be for amortisation. The relevant contract also accounted for within equity. Current agreed by the client. Revenue in respect is either the construction contract that tax is based on the profit for the year. of claims is recognised when negotiations ultimately gives rise to a financial or have reached an advanced stage such Deferred tax is provided in full, using intangible asset; or the services contract that it is probable that the client will the liability method, on temporary where there is no initial construction. accept the claim and the probable differences arising between the tax bases amount can be measured reliably. 2.9 Profit from operations of assets and liabilities and their carrying amounts in the financial statements. Profit for the year includes the benefit Profit from operations is stated after the Deferred tax on such assets and liabilities of claims settled in the year on contracts Group’s share of the post-tax results of is not recognised if the temporary completed in previous years. equity accounted joint venture entities and associates, but before investment income difference arises from the initial 2.7 Segmental reporting and finance costs. recognition of goodwill or from the initial The Group considers its Board of Directors recognition (other than in a business to be the chief operating decision maker 2.10 Finance costs combination) of other assets and liabilities and therefore the segmental disclosures Finance costs of debt, including premiums in a transaction that affects neither the provided in Note 5 are aligned with the payable on settlement and direct issue taxable profit nor the accounting profit. costs, are charged to the income monthly reports provided to the Board of Deferred tax assets are recognised to the statement on an accruals basis over the Directors. The Group’s reporting segments extent that it is probable that future taxable term of the instrument, using the effective are based on the types of services profit will be available against which the interest method. provided. Operating segments with similar temporary differences can be utilised. The economic characteristics have been 2.11 Non-underlying items carrying amount of deferred tax assets is aggregated into four reportable segments. Non-underlying items are items of reviewed at each reporting date. A description of each reportable segment is financial performance which the Group

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2 Principal accounting policies 2.14 Property, plant and equipment are initially measured at cost, including continued Property, plant and equipment is stated transaction costs. at cost less accumulated depreciation 2.12 Taxation continued Available-for-sale investments are and impairment losses. Cost includes Deferred tax is provided on temporary measured at fair value. Gains and losses expenditure associated with bringing the differences arising on investments in arising from changes in the fair value asset to its operating location and condition. subsidiaries, joint ventures and associates, of available-for-sale investments are except where the timing of the reversal 2.15 Leasing recognised in equity, until the investment is of the temporary difference can be Leases which transfer substantially all disposed or is determined to be impaired, controlled by the Group and it is probable of the risks and rewards of ownership at which time the cumulative gain or loss that the temporary difference will not to the lessee are classified as finance is included in the net profit or loss for the reverse in the foreseeable future. leases. All other leases are classified period. Held to maturity investments are measured at amortised cost. Deferred tax assets and liabilities are as operating leases. offset when they relate to income taxes Assets held under finance leases are 2.18 Assets held for sale levied by the same taxation authority and recognised as assets of the Group at their Non-current assets and groups of assets the Group intends to settle its current tax fair value or, if lower, at the present value to be disposed of are classified as held assets and liabilities on a net basis. of the minimum lease payments, for sale if their carrying amounts will determined at the inception of the lease, be recovered through a sale transaction 2.13 Intangible assets and depreciation is provided accordingly. rather than through continuing use. a) Goodwill The liability to the lessor is included in the Held for sale assets are measured at Goodwill arises on the acquisition of balance sheet as a finance lease obligation. the lower of their carrying amount or subsidiaries and other businesses, joint Lease payments are apportioned between fair value less costs to sell. ventures and associates and represents finance charges and reduction of the lease the excess of the fair value of obligation so as to achieve a constant 2.19 Inventories consideration over the fair value of the effective rate of interest on the remaining Inventories are valued at the lower identifiable assets and liabilities acquired. balance of the liability. of cost and net realisable value. Goodwill on acquisitions of subsidiaries and other businesses is included in Rentals payable under operating leases Cost includes an appropriate proportion non-current assets. Goodwill on are charged to income on a straight-line of manufacturing overheads incurred acquisitions of joint ventures and basis over the term of the relevant lease. in bringing inventories to their present associates is included in investments Benefits received and receivable as an location and condition and is determined in joint ventures and associates. incentive to enter into an operating lease using the first-in first-out method. Net are also spread on a straight-line basis realisable value represents the estimated Goodwill is reviewed annually for over the lease term. selling price less all estimated costs of impairment and is carried at cost less completion and costs to be incurred in accumulated impairment losses. Goodwill 2.16 Impairment of assets marketing, selling and distribution. is included when determining the profit Goodwill arising on acquisitions and other or loss on subsequent disposal of the assets that have an indefinite useful life 2.20 Trade receivables business to which it relates. and are not subject to amortisation are Trade receivables are initially recorded at fair value and subsequently measured at Goodwill arising on acquisitions before the reviewed at least annually for impairment. amortised cost as reduced by allowances date of transition to IFRS (1 January 2004) Other intangible assets and property, for estimated irrecoverable amounts. has been retained at the previous UK plant and equipment are reviewed for impairment whenever there is any GAAP amounts subject to being tested 2.21 Trade payables indication that the carrying amount for impairment. Goodwill written off or Trade payables are not interest bearing of the asset may not be recoverable. discount arising on acquisition credited and are stated at cost. to reserves under UK GAAP prior to If the recoverable amount of an asset 1998 has not been reinstated and is not is less than its carrying amount, an 2.22 Provisions included in determining any subsequent impairment loss is recognised. Provisions for insurance liabilities profit or loss on disposal. retained in the Group’s captive insurance Recoverable amount is the higher of fair companies, legal claims, defects and b) Other intangible assets value less costs to sell and value in use. warranties, environmental restoration, Other intangible assets are stated at Value in use is assessed by discounting onerous leases, and other onerous cost less accumulated amortisation the estimated future cash flows that the commitments are recognised at the best and impairment losses. asset is expected to generate. For this estimate of the expenditure required to c) Research and development purpose assets, including goodwill, are settle the Group’s liability. Provisions are Internally generated intangible assets grouped into cash-generating units recognised when: the Group has a present developed by the Group are recognised representing the level at which they are legal or constructive obligation as a result only if all the following conditions are met: monitored by the Board of Directors for of a past event; it is probable that an internal management purposes. Goodwill outflow of resources will be required to • an asset is created that can be identified impairment losses are not reversed in settle the obligation; and the amount of • it is probable that the asset created will subsequent periods. Reversals of other the obligation can be estimated reliably. generate future economic benefits impairment losses are recognised in income when they arise. 2.23 Borrowings • the development cost of the asset can Interest-bearing bank loans and overdrafts be measured reliably. 2.17 Investments are recorded at the proceeds received, Investments are recognised and Other research expenditure is written off net of direct issue costs. Finance charges, derecognised on the trade date where a in the period in which it is incurred. including premiums payable on settlement purchase or sale of an investment is under or redemption and direct issue costs, are a contract whose terms require delivery charged to income on an accruals basis of the investment within the timeframe using the effective interest method and established by the market concerned, and are added to the carrying amount of the instrument.

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2 Principal accounting policies liabilities. Equity instruments issued by results in a non-financial asset or liability, continued the Company are recorded at the proceeds are included in the initial cost of that asset received, net of direct issue costs. or liability. 2.24 Retirement benefit costs The Group, through trustees, operates b) Cumulative convertible redeemable Changes in the fair value of derivative a number of defined benefit and defined preference shares and convertible financial instruments that do not qualify contribution retirement and other long bonds for hedge accounting are recognised in term employee benefit schemes, The Company’s cumulative convertible the income statement as they arise. the majority of which are of the defined redeemable preference shares and the Hedge accounting is discontinued when benefit type and are funded. Defined Group’s convertible bonds are compound the hedging instrument expires or is sold, benefit contributions are determined instruments, comprising a liability terminated, or exercised, or no longer in consultation with the trustees, component and an equity component. qualifies for hedge accounting. At that after taking actuarial advice. The fair value of the liability components time, any cumulative gain or loss on the were estimated using the prevailing For defined benefit retirement benefit hedging instrument recognised in OCI market interest rates at the dates of issue schemes, the cost of providing benefits is retained in equity until the hedged for similar non-convertible instruments. recognised in the income statement transaction occurs. If a hedged transaction The difference between the proceeds and the defined benefit obligations is no longer expected to occur, the net of issue of the preference shares and are determined at the reporting date cumulative gain or loss recognised in OCI convertible bonds and the fair value by independent actuaries, using the is transferred to the income statement assigned to the respective liability projected unit credit method. The liability for the period. components, representing the embedded recognised in the balance sheet option to convert the liability components Derivatives embedded in other financial comprises the present value of the into the Company’s ordinary shares, is instruments or other host contracts defined benefit pension obligation, included in equity. The interest expense are treated as separate derivatives and determined by discounting the estimated on the liability components is calculated recorded in the balance sheet at fair value future cash flows using the market yield by applying applicable market interest when their risks and characteristics are on a high quality corporate bond, less the rates for similar non-convertible debt not closely related to those of the host fair value of the scheme assets. Actuarial prevailing at the dates of issue to the contract. Changes in the fair value of gains and losses are recognised in the liability components of the instruments. those embedded derivatives recognised period in which they occur in the The difference between this amount and in the balance sheet are recognised statement of comprehensive income. the dividend/interest paid is added to the in the income statement as they arise. Contributions to defined contribution carrying amount of the liability component d) PPP concession companies pension schemes are charged to the and is included in finance charges, together Assets constructed by PPP concession income statement as they fall due. with the dividend/interest payable. companies are classified principally as 2.25 Share-based payments c) Derivative financial instruments available-for-sale financial assets. and hedge accounting Employee services received in In the construction phase, income is The Group uses derivative financial exchange for the grant of share options, recognised by applying an attributable instruments to manage interest rate risk performance share plan awards and profit margin to the construction costs and to hedge exposures to fluctuations in deferred bonus plan awards are charged representing the fair value of construction foreign currencies and commodity prices in the income statement on a straight-line services. In the operational phase, income in accordance with its risk management basis over the vesting period, based on is recognised by allocating a proportion policy. The Group does not use derivative the fair values of the options or awards of total cash received over the life of financial instruments for speculative at the date of grant and the numbers the project to service costs by means purposes. A description of the Group’s expected to become exercisable. The of a deemed constant rate of return on objectives, policies and strategies with credits in respect of the amounts charged those costs. The residual element of regard to derivatives and other financial are included within separate reserves in projected cash is allocated to the financial instruments is set out in Note 39. equity until such time as the options or asset using the effective interest rate awards are exercised, when the proceeds Derivatives are initially recognised in the method, giving rise to interest income. received in respect of share options are balance sheet at fair value on the date the Due to the nature of the contractual credited to share capital and share derivative transaction is entered into and arrangements the projected cash flows premium or the shares held by the are subsequently remeasured at their can be estimated with a high degree employee trust are transferred to fair values. of certainty. employees in respect of performance share plan awards and deferred bonus Changes in the fair value of derivatives In the construction phase the fair value plan awards. that are designated and qualify as fair of the Group’s PPP financial assets is value hedges are recognised in the determined by applying an attributable 2.26 Financial instruments income statement together with any profit margin on the construction costs Financial assets and financial liabilities changes in the fair value of the hedged representing the fair value of construction are recognised in the Group’s balance item that are attributable to the services performed. In the operational sheet when the Group becomes a hedged risk. phase fair value is determined by party to the contractual provisions discounting the future cash flows Changes in the fair value of the effective of the instrument. allocated to the financial asset using portion of derivatives that are designated discount rates based on long-term gilt a) Classification of financial liabilities and qualify as cash flow hedges are rates adjusted for the risk levels and equity instruments recognised in other comprehensive associated with the assets, with market Financial liabilities and equity instruments income (OCI). Changes in the fair value related movements in fair value are classified according to the substance of the ineffective portion of cash flow recognised in OCI and other movements of the contractual arrangements. An hedges are recognised in the income recognised in the income statement. equity instrument is any contract that statement. Amounts originally recognised Amounts originally recognised in OCI evidences a residual interest in the assets in OCI are transferred to the income are transferred to the income statement of the Group after deducting all of its statement when the underlying upon disposal of the asset. transaction occurs or, if the transaction

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2 Principal accounting policies d) Impairment of goodwill h) Retirement benefit obligations continued Determining whether goodwill is impaired Details of the Group’s defined benefit requires an estimation of the value in use pension schemes are set out in Note 28, 2.27 Judgements and key sources of the cash-generating units to which the including tables showing the sensitivity of estimation uncertainty goodwill has been allocated. The value in of the Group pension scheme obligations The preparation of consolidated financial use calculation requires an estimate to be and assets to different actuarial statements under IFRS requires made of the timing and amount of future assumptions. At 31 December 2013, the management to make judgements, cash flows expected to arise from the retirement benefit liability recognised on estimates and assumptions that affect cash-generating unit and the application the Group’s balance sheet was £434m amounts recognised for assets and of a suitable discount rate in order to (2012: £333m restated). The effects liabilities at the reporting date and the calculate the present value. A nominal of changes in the actuarial assumptions amounts of revenue and expenses growth rate, based on real GDP growth underlying the benefit obligation, discount incurred during the reporting period. plus CPI inflation, is used to calculate a rates and the differences between Actual outcomes may differ from these terminal growth multiple in accordance expected and actual returns on judgements, estimates and assumptions. with the Gordon Growth Model. The the schemes’ assets are classified as The judgements, estimates and discount rates used are based on the actuarial gains and losses. During 2013 assumptions that have the most Group’s weighted average cost of capital the Group recognised net actuarial losses significant effect on the carrying value adjusted to reflect the specific economic of £114m in equity (2012: £115m losses of assets and liabilities of the Group as at environment of the relevant cash- restated), including its share of the 31 December 2013 are discussed below. generating unit. The carrying value of actuarial gains and losses arising in joint a) Revenue and margin recognition goodwill at 31 December 2013 was ventures and associates. The Group’s revenue recognition and £1,048m (2012: £1,160m). i) Held for sale and discontinued margin recognition policies, which are set e) Available-for-sale financial assets operations out in Notes 2.5 and 2.6, are central to At 31 December 2013 £2,747m (2012: When it is probable that businesses will how the Group values the work it has £3,183m) of assets constructed by the be sold within one year and they are being carried out in each financial year. Group’s PPP subsidiary, joint venture and actively marketed they meet the criteria to These policies require forecasts to be associate companies are classified as be classified as held for sale. Discontinued made of the outcomes of long term “available-for-sale financial assets”. In the operations are businesses or a group of professional services, construction operational phase the fair value of these businesses which meet the criteria to be services and support services contracts, financial assets is measured at each classified as held for sale, have been sold which require assessments and reporting date by discounting the future or abandoned and form a separate major judgements to be made on recovery value of the cash flows allocated to the line of business of the Group. Details of of pre-contract costs, changes in the financial asset. A range of discount rates, the Group’s discontinued operations are scope of work, contract programmes, is used from 5.5% to 8.5% (2012: 4.7% set out in Note 12. maintenance and defects liabilities and to 7.7%), which reflects the prevailing changes in costs. risk free interest rates and the different risk profiles of the various concessions. b) Taxation A £192m loss was taken to other The Group is subject to tax in a number comprehensive income in 2013 and a of jurisdictions and judgement is required cumulative fair value gain of £405m had in determining the worldwide provision arisen on these financial assets as a result for income taxes. The Group provides of movements in the fair value of these for future liabilities in respect of financial assets at 31 December 2013. uncertain tax positions where additional tax may become payable in future periods f) Recoverable value of recognised and such provisions are based on receivables management’s assessment of exposures. The Group has recognised trade receivables with a carrying value of Deferred tax liabilities are generally £803m (2012: £824m). The recoverability provided for in full and deferred tax assets of trade receivables is regularly reviewed are recognised to the extent that it is in the light of the available economic judged probable that future taxable profit information specific to each receivable will arise against which the temporary and specific provisions are recognised for differences will be utilised. balances considered to be irrecoverable. c) Non-underlying items g) Provisions Non-underlying items are items of Provisions are liabilities of uncertain financial performance which the Group timing or amount and therefore in making believes should be separately identified on a reliable estimate of the quantum and the face of the income statement to assist timing of liabilities judgement is applied in understanding the underlying financial and re-evaluated at each reporting date. performance achieved by the Group. The Group recognised provisions at Determining whether an item is part of 31 December 2013 of £193m underlying items or non-underlying items (2012: £228m). requires judgment. A total non-underlying cost after tax of £157m was charged to the income statement for the year ended 31 December 2013.

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3 Exchange rates The following key exchange rates were applied in these financial statements. Average rates £1 buys 2013 2012 Change US$ 1.57 1.59 (1.3)% Euro 1.18 1.23 (4.1)% Closing rates £1 buys 2013 2012 Change US$ 1.65 1.62 1.9% Euro 1.20 1.23 (2.4)%

4 Revenue Group Group Company Company 2013 20123 2013 2012 Continuing operations £m £m £m £m Revenue from the provision of services* 8,709 8,639 – – Revenue from manufacturing activities 11 13 – – Proceeds from sale of development land 25 4 7 – Dividends from subsidiaries – – 84 127 Dividends from joint ventures and associates – – 6 3 Total revenue 8,745 8,656 97 130 Investment income (Note 8) 65 62 5 6 Total revenue and investment income 8,810 8,718 102 136

3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38). * Includes IAS 11 construction contract revenue of £7,872m (2012: £7,668m re-presented3).

5 Segment analysis Reportable segments of the Group: • Professional Services – the provision of project management, architectural, design or other technical services performed by the Group as a consultant • Construction Services – activities resulting in the physical construction of an asset • Support Services – activities which support existing assets or functions such as asset maintenance and refurbishment • Infrastructure Investments – acquisition, operation and disposal of infrastructure assets such as PPP concessions, student accommodation and airports.

5.1 Total Group Income statement – performance by activity Professional Construction Support Infrastructure Corporate from continuing operations Services Services Services Investments activities Total 2013 2013 2013 2013 2013 2013 £m £m £m £m £m £m Revenue including share of joint ventures and associates 1,661 6,573 1,265 608 11 10,118 Share of revenue of joint ventures and associates (13) (971) (33) (356) – (1,373) Group revenue 1,648 5,602 1,232 252 11 8,745 Underlying group operating profit/(loss)1 54 (16) 54 69 (29) 132 Share of results of joint ventures and associates – 37 1 33 – 71 Underlying profit/(loss) from operations1 54 21 55 102 (29) 203 Non-underlying items – amortisation of acquired intangible assets (13) (10) – (7) – (30) – other non-underlying items (28) (45) (15) – (37) (125) Profit/(loss) from operations 13 (34) 40 95 (66) 48 Investment income 65 Finance costs (81) Profit before taxation 32

2012 20122,3 20123 2012 2012 2012 2,3 £m £m £m £m £m £m Revenue including share of joint ventures and associates 1,668 6,511 1,151 636 – 9,966 Share of revenue of joint ventures and associates (21) (818) (44) (427) – (1,310) Group revenue 1,647 5,693 1,107 209 – 8,656 Underlying group operating profit/(loss)1 97 70 28 29 (32) 192 Share of results of joint ventures and associates 1 49 2 40 – 92 Underlying profit/(loss) from operations1 98 119 30 69 (32) 284 Non-underlying items – amortisation of acquired intangible assets (19) (12) – (8) – (39) – other non-underlying items (13) (49) (14) (12) (3) (91) Profit/(loss) from operations 66 58 16 49 (35) 154 Investment income 62 Finance costs (69) Profit before taxation 147 1 Before non-underlying items (Notes 2.11 and 10). 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

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5 Segment analysis continued 5.1 Total Group continued Professional Construction Support Infrastructure Corporate Assets and liabilities by activity Services Services Services Investments activities Total 2013 2013+ 2013 2013 2013 2013 £m £m £m £m £m £m Due from construction contract clients 179 316 136 – – 631 Due to construction contract clients (115) (192) (53) – – (360) Inventories and non-construction work in progress 1 62 71 – 1 135 Trade and other receivables – current 303 685 142 50 10 1,190 Trade and other payables – current (279) (1,400) (283) (58) (26) (2,046) Provisions – current (4) (58) (10) (2) (26) (100) Working capital from continuing operations* 85 (587) 3 (10) (41) (550) Classified as net assets held for sale (Note 12) – (17) – – – (17) Adjusted working capital 85 (604) 3 (10) (41) (567)

* Includes non-operating items and current working capital.

Total assets 833 2,133 486 1,213 1,047 5,712 Total liabilities (499) (2,056) (458) (194) (1,470) (4,677) Net assets/(liabilities) 334 77 28 1,019^ (423) 1,035

+ Includes net assets held for sale of £15m relating to the Rail disposal group (Note 12). ^ Excludes net non-recourse borrowings of £354m which are included within Corporate. Refer to Notes 2.7 and 5.2.

2012 20122 2012 2012 2012 20122,8 £m £m £m £m £m £m Due from construction contract clients 187 387 60 – – 634 Due to construction contract clients (127) (243) (12) – – (382) Inventories and non-construction work in progress 5 79 87 – 1 172 Trade and other receivables – current 309 663 208 49 12 1,241 Trade and other payables – current (302) (1,455) (368) (43) (46) (2,214) Provisions – current8 (4) (93) (14) (1) (4) (116) Working capital 8 68 (662) (39) 5 (37) (665)

* Includes non-operating items and current working capital. 8 Re-presented to include current provisions only in line with all other working capital items.

Total assets 864 2,268 579 1,341 739 5,791 Total liabilities (571) (2,082) (449) (256) (1,120) (4,478) Net assets/(liabilities) 293 186 130 1,085 x (381) 1,313 x Excludes net non-recourse borrowings of £368m which are included within Corporate. Refer to Notes 2.7 and 5.2. 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

Professional Construction Support Infrastructure Corporate Other information – continuing operations Services Services Services Investments activities Total 2013 2013 2013 2013 2013 2013 £m £m £m £m £m £m Capital expenditure on property, plant and equipment (Note 17) 26 16 11 11 7 71 Depreciation (Note 17) 13 16 18 2 1 50 Gain on disposals of interests in investments (Note 32.3) – – – 82 – 82

2012 20123 20123 2012 2012 20123 £m £m £m £m £m £m Capital expenditure on property, plant and equipment (Note 17) 11 16 11 1 1 40 Depreciation (Note 17) 13 16 19 2 1 51 Gain on disposals of interests in investments (Note 32.4) – – – 52 – 52

3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

United United Rest of Performance by geographic destination – continuing operations Kingdom States world Total 2013 2013 2013 2013 £m £m £m £m Revenue including share of joint ventures and associates 4,607 3,921 1,590 10,118 Share of revenue of joint ventures and associates (436) (180) (757) (1,373) Group revenue 4,171 3,741 833 8,745

Non-current assets excluding financial assets and deferred tax assets 1,057 854 215 2,126 Classified as net assets held for sale (Note 12) – – 52 52 Adjusted non-current assets excluding financial assets and deferred tax assets 1,057 854 267 2,178 20123 20123 20123,9 20123 £m £m £m £m Revenue including share of joint ventures and associates 4,837 3,540 1,589 9,966 Share of revenue of joint ventures and associates (475) (118) (717) (1,310) Group revenue 4,362 3,422 872 8,656

Non-current assets excluding financial assets and deferred tax assets 1,207 835 307 2,349

3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38). 9 Re-presented to amalgamate geographic information relating to continuing Mainland European operations and Rest of world. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 106

5 Segment analysis continued Major clients Included in Group revenue are revenues from continuing operations of £2,235m (2012: £2,226m) from the US Government and £1,790m (2012: £1,959m restated) from the UK Government, which are the Group’s two largest clients. These revenues are included in the results across all four reported segments.

5.2 Infrastructure Investments Share of joint Share of joint ventures and ventures and associates associates Group (Note 18.2)+ Total Group (Note 18.2)+ Total 2013 2013 2013 201210 2012 201210 Underlying profit from operations1 £m £m £m £m £m £m UK^ 2 27 29 2 35 37 North America 21 6 27 12 6 18 Infrastructure Fund10 (2) – (2) (4) – (4) Infrastructure (3) – (3) (3) (1) (4) Gain on disposals of interests in investments 82 – 82 52 – 52 100 33 133 59 40 99 Bidding costs and overheads10 (31) – (31) (30) – (30) 69 33 102 29 40 69

Net assets/(liabilities) UK^ 391 433 824 393 528 921 North America 106 83 189 130 65 195 Infrastructure Fund – 11 11 – – – Infrastructure (3) – (3) 1 – 1 494 527 1,021 524 593 1,117 Infrastructure Investments central functions (2) – (2) (32) – (32) Total Infrastructure Investments net assets 492 527 1,019 492 593 1,085 Non-recourse borrowings net of associated cash and cash equivalents (Note 26) (354) – (354) (368) – (368) 138 527 665 124 593 717

1 Before non-underlying items (Notes 2.11 and 10). + The Group’s share of the results of joint ventures and associates is disclosed net of investment income, finance costs and taxation. ^ Including Singapore. 10 Re-presented to separately identify costs directly related to the Infrastructure Fund.

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6 Profit/(loss) from operations 6.1 Profit/(loss) from continuing operations is stated after charging/(crediting)

2013 20123 Continuing operations £m £m Research and development costs 2 1 Depreciation of property, plant and equipment 50 51 Amortisation of intangible assets 33 43 Net reversal of trade receivables impairment provision (2) (13) (Impairment reversal)/impairment of property, plant and equipment (3) 5 Impairment of inventory – 3 Gain on disposal of property, plant and equipment (3) (7) Cost of inventory recognised as an expense 174 145 Exchange gains and losses – 1 Auditor’s remuneration 7 7 Short term hire charges for plant and equipment 125 117 Other operating lease rentals 110 114

3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

6.2 Analysis of auditor’s remuneration – continuing and discontinued operations

2013 2012 £m £m Services as auditor to the Company 0.8 0.8 Services as auditor to Group subsidiaries 3.7 4.3 Total audit fees 4.5 5.1 Audit related assurance fees 0.5 0.5 Taxation compliance fees 0.2 0.3 Taxation advisory fees 0.1 0.1 Corporate finance fees 1.4 1.6 Other assurance fees 0.1 0.2 Other services 0.1 0.1 Total non-audit fees 2.4 2.8 Total fees in relation to audit and other services 6.9 7.9

7 Employee costs 7.1 Group – continuing and discontinued operations

2013 2012 Employee costs during the year £m £m Wages and salaries 2,299 2,253 Underlying redundancy costs 14 12 Non-underlying redundancy costs (Note 10) 32 21 Social security costs 225 226 Pension costs (Note 28) 147 104 Share-based payments (Note 33) 6 7 2,723 2,623

Of the above employee costs, £2,350m (2012: £2,293m) relates to continuing operations.

2013 20123 Average number of Group employees Number Number Professional Services 14,086 13,894 Construction Services 14,925 16,267 Support Services 8,129 7,228 Infrastructure Investments 1,554 1,621 Corporate 154 188 Continuing operations 38,848 39,198 Discontinued operations 10,937 10,976 49,785 50,174

3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

At 31 December 2013 the total number of Group employees was 41,221 (2012: 50,304) of which 39,141 (2012: 39,054) relate to continuing operations and 2,080 (2012: 11,250) relate to discontinued operations.

7.2 Company On 1 February 2013, employees of the Company were transferred to Balfour Beatty Group Employment Ltd which has been established as the employing entity for the Balfour Beatty Group’s UK businesses. The average number of employees of Balfour Beatty plc was 14 (2012: 134). Total employee costs of Balfour Beatty plc were £2m (2012: £19m). Total employee costs comprise: wages and salaries £2m (2012: £14m); social security costs £nil (2012: £2m); pension costs £nil (2012: £1m); and share-based payments £nil (2012: £2m).

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8 Investment income Group Group Company Company 2013 2012 2013 2012 Continuing operations £m £m £m £m Subordinated debt interest receivable 25 24 1 2 Interest receivable on PPP financial assets 33 31 – – Interest receivable from subsidiaries – – 3 3 Other interest receivable and similar income 7 7 1 1 65 62 5 6

9 Finance costs Group Group Company Company 2013 20122,3 2013 2012 2 Continuing operations £m £m £m £m Non-recourse borrowings – bank loans and overdrafts 28 27 – – Preference shares – finance cost 12 12 12 12 Convertible bonds – finance cost 1 – – – US private placement – finance cost 9 – 9 – Other interest payable – loans under committed facilities 9 8 9 8 – other bank loans and overdrafts 3 3 1 1 – commitment fees 4 4 4 4 – other finance charges 6 6 – – Net finance cost on pension scheme assets and liabilities (Note 28.2) 9 9 – – Interest payable to subsidiaries – – 7 10 81 69 42 35

10 Non-underlying items Group Group Company Company 2013 20123 2013 2012 £m £m £m £m Operating expenses (charged against)/credited to profit 10.1 Continuing operations 10.1.1 Amortisation of acquired intangible assets (30) (39) – – 10.1.2 Other non-underlying items – restructuring and reorganisation costs relating to Australiao (20) (2) – – – restructuring and reorganisation costs relating to other continuing businesseso (32) (62) (3) (2) – pension curtailment charges and related costs (52) – – – – cost of implementing UK shared service centre (7) (4) – – – cost of implementing US shared service centreo (10) (2) – – – post-acquisition integration, reorganisation and other costs (4) (9) – – – write-down of investment in Exeter International Airport – (12) – – Total other non-underlying items (125) (91) (3) (2) Charged against profit before taxation from continuing operations (155) (130) (3) (2) 10.1.3 Tax on items above 35 35 (3) 1 Non-underlying items charged against profit for the year from continuing operations (120) (95) (6) (1) 10.2 Discontinued operations 10.2.1 Amortisation of acquired intangible assets (2) (6) – – 10.2.2 Other non-underlying items – goodwill impairment in respect of Mainland European rail businesses (38) (95) – – – other restructuring charges in respect of Mainland European rail businesseso (6) (2) – – – pension curtailment charges (2) – – – – Rail Germany regulatory fine (2) – – – – loss on disposal of Rail Spain (4) – – – – loss on disposal of Stassfurt Signalling Workshop (1) – – – – UK facilities management business disposal gain/transaction costso 16 (2) – – Total other non-underlying items from discontinued operations (37) (99) – – Charged against profit before taxation from discontinued operations (39) (105) – – 10.2.3 Tax on items above 2 4 – – Non-underlying items charged against profit for the year from discontinued operations (37) (101) – – Charged against profit for the year (157) (196) (6) (1)

3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38). o Re-presented to separately identify restructuring costs relating to Australia, the disposal transaction costs relating to the UK facilities management business, the costs relating to the implementation of the US shared service centre and to amalgamate the prior year restructuring costs relating to continuing Mainland European rail businesses.

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10 Non-underlying items continued Continuing operations 10.1.1 The amortisation of acquired intangible assets from continuing operations comprises: customer contracts £10m (2012: £16m); customer relationships £11m (2012: £14m); and brand names £9m (2012: £9m). 10.1.2.1 In response to the downturn in Australia, the Group incurred restructuring and reorganisation costs of £20m (2012: £2m) mainly relating to the mining sector. The 2013 restructuring costs comprise: redundancy costs £12m (2012: £2m); and onerous leases £8m (2012: £nil). 10.1.2.2 The Group continued to implement its plan to restructure a number of its businesses in order to increase its focus on the needs of clients and upon growth sectors, further integrate its service offering to these clients, and realise operational efficiencies. In 2013 restructuring costs of £32m were incurred (2012: £62m) relating to: Construction Services UK £14m (2012: £34m), where six business units have been streamlined and restructured into one business with three business streams; Support Services UK £5m (2012: £5m); other UK entities £7m (2012: £10m); continuing Mainland European rail businesses £nil (2012: £7m) and other non-UK entities £6m (2012: £6m). The 2013 restructuring costs comprise: redundancy costs £16m (2012: £24m); external advisers £6m (2012: £8m); impairment of land and buildings £nil (2012: £5m); reversal of impairment of land and buildings £(3)m (2012: £nil); gain on sale of property £(3)m (2012: £nil); other property related costs £4m (2012: £11m); pension curtailment cost £1m (2012: £2m); and other restructuring costs £11m (2012: £12m). The Company incurred restructuring costs of £3m (2012: £2m) during the year. 10.1.2.3 On 31 August 2013 the majority of members of the Balfour Beatty Pension Fund ceased to accrue future defined benefits and became deferred members resulting in a curtailment charge of £51m with associated costs of £1m (2012: £nil) being incurred. 10.1.2.4 In 2013, transitioning other operating companies to the UK shared service centre in Newcastle-upon-Tyne and increasing the scope led to incremental costs of £7m (2012: £4m) being incurred. 10.1.2.5 In 2013, the implementation of the US shared service centre in Lancaster, Pennsylvania with the transfer of roles from New York led to incremental costs of £10m (2012: £2m) being incurred. 10.1.2.6 Post-acquisition integration and reorganisation costs of £4m (2012: £9m) have been incurred in 2013 of which £3m (2012: £nil) relates to Howard S. Wright post-acquisition reorganisation costs and £1m (2012: £1m) relates to Parsons Brinckerhoff post-acquisition reorganisation costs. In 2012, a liability of £8m was settled in respect of a geotechnical survey carried out by a company acquired by Parsons Brinckerhoff prior to its own acquisition by Balfour Beatty in 2009. 10.1.2.7 During 2012 an impairment charge of £12m arose on the Group’s 60% interest in Regional & City Airports (Exeter) Holdings Ltd from writing the carrying value of the Group’s joint venture investment down to £nil, as a result of the continued effect of adverse economic conditions upon traffic at regional airports, which was exacerbated by an increase in Air Passenger Duty effective from April 2012. Exeter was subsequently sold in 2013 (Note 32.3.5). 10.1.3 The non-underlying items charged against Group operating profit from continuing operations gave rise to a tax credit of £35m comprising: £9m on amortisation of acquired intangible assets and £26m on other non-underlying items (2012: £35m comprising: £13m on amortisation of acquired intangible assets and £22m on other non-underlying items). The non-underlying items charged against Company operating profit gave rise to £3m tax (2012: £1m). Discontinued operations 10.2.1 The amortisation of acquired intangible assets from discontinued operations comprises: customer contracts £1m (2012: £1m); customer relationships £1m (2012: £4m); and brand names £nil (2012: £1m). 10.2.2.1 During 2012, following a strategic review in the light of low activity levels and the commoditisation of work, the Group decided to divest all of its Mainland European rail businesses over time. At 28 June 2013 Rail Germany, Rail Scandinavia and Rail Spain were classified as discontinued operations with a £38m goodwill impairment arising in respect of Rail Germany. During 2012, £95m of goodwill in the Mainland European rail businesses was impaired. Refer to Note 12. 10.2.2.2 Restructuring costs of £6m (2012: £2m) were incurred in respect of Mainland European rail businesses classified as discontinued operations of which £4m (2012: £1m) related to redundancy costs. 10.2.2.3 On 31 August 2013 the majority of members of the Balfour Beatty Pension Fund ceased to accrue future defined benefits and became deferred members resulting in a curtailment charge of £2m being incurred in relation to Balfour Beatty WorkPlace employees. 10.2.2.4 During 2013, Rail Germany incurred a £2m fine imposed by the German competition authority in respect of allegations of historic anti-competitive behaviour occurring in Schreck-Mieves GmbH, a company acquired by Balfour Beatty in 2008. 10.2.2.5 On 1 March 2013 the Group disposed of Rail Spain for a net loss of £4m. Refer to Note 32.3.1. 10.2.2.6 On 1 August 2013, as the initial step in disposing of Rail Germany, the Group disposed of the Stassfurt Signalling Workshop to its local management for €1 resulting in a net loss of £1m. Refer to Note 32.3.6. 10.2.2.7 On 13 December 2013 the Group disposed of the UK facilities management business, Balfour Beatty WorkPlace for net cash proceeds of £155 million resulting in a net gain of £16m. Transaction costs of £2m were incurred in 2012 relating to the disposal of Balfour Beatty WorkPlace. Refer to Note 32.3.10. 10.2.3 The non-underlying items charged against Group operating profit from discontinued operations gave rise to a tax credit of £2m comprising: £nil on amortisation of acquired intangible assets and £2m on other non-underlying items (2012: £4m comprising: £1m on amortisation of acquired intangible assets and £3m on other non-underlying items).

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11 Taxation 11.1 Taxation charge – continuing operations Group Non- underlying Underlying items items1 (Note 10) Total Total Company Company 2013 2013 2013 20122,3 2013 2012 2 £m £m £m £m £m £m Total UK tax 7 (20) (13) (9) (1) (9) Total non-UK tax 43 (15) 28 35 – – Total tax charge/(credit) 50 (35) 15 26 (1) (9)

Continuing operations x UK current tax – corporation tax for the year at 23.25% (2012: 24.5%) 8 (7) 1 (7) (3) (10) – adjustments in respect of previous periods (10) – (10) (2) 2 1 (2) (7) (9) (9) (1) (9) Non-UK current tax – non-UK tax on profits for the year 46 (21) 25 33 – – – adjustments in respect of previous periods (14) – (14) 3 – – 32 (21) 11 36 – –

Total current tax 30 (28) 2 27 (1) (9)

UK deferred tax – current year credit (2) (13) (15) (3) – – – adjustments in respect of previous periods 5 – 5 – – – – UK corporation tax rate change 6 – 6 3 – – 9 (13) (4) – – – Non-UK deferred tax – current year charge 7 6 13 6 – – – adjustments in respect of previous periods 4 – 4 (7) – – 11 6 17 (1) – –

Total deferred tax 20 (7) 13 (1) – –

Total tax charge/(credit) from continuing operations 50 (35) 15 26 (1) (9) x Excluding joint ventures and associates. 1 Before non-underlying items (Notes 2.11 and 10). 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

The Group tax charge excludes amounts for joint ventures and associates (refer to Note 18.2), except where tax is levied at the Group level. In addition to the Group tax charge, tax of £37m is credited directly to other comprehensive income (2012: £72m charged), comprising: a deferred tax credit of £9m (2012: £13m credit restated); a current tax credit of £nil (2012: £1m credit); and a deferred tax credit in respect of joint ventures and associates of £28m (2012: £86m charge). In addition to the Company tax credit, £2m of deferred tax is credited directly to other comprehensive income (2012: £1m credited).

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11 Taxation continued 11.2 Taxation reconciliation – continuing operations

Group Group Company Company 2013 20122,3 2013 2012 2 £m £m £m £m Profit before taxation 32 147 38 75 Less share of results of joint ventures and associates (71) (92) – – (Loss)/profit before taxation (39) 55 38 75 Add non-underlying items charged excluding share of joint ventures and associates 155 130 3 2 Underlying profit before taxation and the results of joint ventures and associates1 116 185 41 77 Tax on profit/(loss) before taxation at standard UK corporation tax rate of 23.25% (2012: 24.5%) 27 45 9 19 Effects of Expenses not deductible for tax purposes 5 7 3 1 Dividend income not taxable – – (21) (32) Non-taxable disposals (20) (12) – – Tax levied at Group level on share of joint ventures’ and associates’ profits 7 5 – – Preference share dividends not deductible 3 3 3 3 Losses not available for offset 24 5 – – Recognition of losses not previously recognised (1) (1) – – Higher tax rates on non-UK earnings 14 14 – – UK corporation tax rate change 6 3 – – Adjustments in respect of previous periods (15) (8) 2 1 Total tax charge/(credit) on underlying profit/(loss) 50 61 (4) (8) Less tax (credit)/charge on non-underlying items (35) (35) 3 (1) Total tax charge/(credit) on profit/(loss) from continuing operations 15 26 (1) (9)

12 Discontinued operations Rail disposal group Following a strategic review in light of low activity levels and the commoditisation of work, the Group decided to divest all of its Mainland European rail businesses over time. The Group has been actively marketing its Mainland European rail businesses and accordingly, when it is probable that these businesses will be sold within a year and meet the criteria to be classified as an asset held for sale, or are sold or abandoned, they will form part of the Rail disposal group and be disclosed as discontinued operations. To be classified as a discontinued operation, the businesses must represent a separate major line of business. Other than the Mainland European rail businesses there are no significant Group operations in Mainland Europe and therefore by exiting these businesses, the Group is exiting from a separate major geographical operation and meets the criteria to classify these businesses as discontinued operations. On 1 March 2013 the Group disposed of its interest in Rail Iberica SA (Rail Spain) to its local management for a cash consideration of €1 resulting in a net £4m loss on disposal. Refer to Note 32.3.1. On 28 June 2013 it was probable that Rail Germany and Rail Scandinavia would be disposed within a year and therefore met the criteria to be classified as an asset held for sale, with a £38m goodwill impairment. Together with Rail Spain they constitute the Rail disposal group within discontinued operations. On 1 August 2013, as the initial step in disposing of Rail Germany, the Group disposed of the Stassfurt Signalling Workshop to its local management for €1 resulting in a net loss of £1m and closed its Switches and Crossings manufacturing facility during the year. Refer to Note 32.3.6. On 10 December 2013, the Group announced that it had reached agreement to sell Rail Scandinavia to Strukton Rail BV resulting in a small gain. This disposal is effective from 8 January 2014. Refer to Note 37. The Rail disposal group was part of the Construction Services segment.

UK facilities management disposal group Balfour Beatty WorkPlace (BBW) is the Group’s only significant buildings facilities management business in the UK and represents a separate major line of business. On 28 June 2013, it was probable that BBW would be disposed of within a year and therefore BBW met the criteria to be classified as an asset held for sale and consequently as a discontinued operation. On 13 December 2013 the Group disposed of BBW to GDF Suez Energy Services for net cash consideration of £155m. This resulted in an estimated net non-underlying gain of £16m. Refer to Note 32.3.11. BBW was part of the Support Services segment.

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12 Discontinued operations continued Results of the discontinued operations included within the Group Income Statement

UK facilities UK facilities Rail management Total Rail management Total disposal disposal discontinued disposal disposal discontinued group group operations group group operations 2013 2013 2013 2012 2012 2012 £m £m £m £m £m £m Revenue including share of joint ventures and associates 396 470 866 448 482 930 Share of revenue of joint ventures and associates (4) (45) (49) (12) (91) (103) Group revenue 392 425 817 436 391 827 Underlying group operating (loss)/profit (26) 19 (7) (1) 21 20 Share of results of joint ventures and associates – – – 3 1 4 Underlying (loss)/profit from operations (26) 19 (7) 2 22 24 Net finance costs (2) (1) (3) (2) – (2) Underlying (loss)/profit before tax (28) 18 (10) – 22 22 Taxation on underlying (loss)/profit (3) (2) (5) (3) (4) (7) Underlying (loss)/profit after tax (31) 16 (15) (3) 18 15 Non-underlying items Amortisation of acquired intangible assets – (2) (2) (1) (5) (6) (Loss)/gain on disposal (5) 16 11 – – – Other non-underlying items (46) (2) (48) (97) (2) (99) (51) 12 (39) (98) (7) (105) Taxation on non-underlying items 1 1 2 3 1 4 Non-underlying (loss)/profit after tax (50) 13 (37) (95) (6) (101) (Loss)/profit for the year from discontinued operations (81) 29 (52) (98) 12 (86)

Major classes of assets and liabilities included within net assets held for sale Rail disposal group 2013 Notes £m Non-current assets Intangible assets – other 16 2 Property, plant and equipment 17 42 Investments in joint ventures and associates 18 8 52 Current assets Inventories and non-construction work in progress 13 Due from construction contract clients 73 Trade and other receivables 74 Cash 31.3 19 179 Total assets classified as held for sale 231

Current liabilities Due to construction contract clients (47) Trade and other payables (120) Provisions 25 (10) Current tax liabilities (3) (180) Non-current liabilities Trade and other payables (4) Provisions 25 (3) Retirement benefit liabilities 28 (30) Deferred tax liabilities 27 (2) (39) Total liabilities classified as held for sale (219)

Net assets of disposal group 12

Reconciliation of net assets classified as held for sale UK facilities Rail management Total disposal disposal discontinued group group operations 2013 2013 2013 £m £m £m As at 28 June 2013 39 115 154 Net assets disposed since June (Note 32.3.11) (5) (120) (125) Movement since classification as held for sale (22) 5 (17) Total net assets classified as held for sale 12 – 12

Included within the Group’s cash flows for the year ended 31 December 2013 are net £10m operating cash outflows; net £10m investing cash outflows; and net £1m financing cash outflows relating to the Rail disposal group and net £7m operating cash inflows and net £139m investing cash inflows relating to the UK facilities management disposal group.

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13 Earnings per ordinary share Basic Diluted Basic Diluted 2013 2013 2012 2,3 2012 2,3 Earnings £m £m £m £m Continuing operations Earnings 17 17 121 121 Amortisation of acquired intangible assets – net of tax credit of £9m (2012: £13m) 21 21 26 26 Other non-underlying items – net of tax credit of £26m (2012: £22m) 99 99 69 69 Underlying earnings 137 137 216 216 Discontinued operations Earnings (52) (52) (86) (86) Amortisation of acquired intangible assets – net of tax credit of £nil (2012: £1m) 2 2 5 5 Other non-underlying items – net of tax of credit of £2m (2012: £3m) 35 35 96 96 Underlying earnings (15) (15) 15 15 Total operations Earnings (35) (35) 35 35 Amortisation of acquired intangible assets – net of tax credit of £9m (2012: £14m) 23 23 31 31 Other non-underlying items – net of tax credit of £28m (2012: £25m) 134 134 165 165 Underlying earnings 122 122 231 231

Basic Diluted Basic Diluted 2013 2013 2012 2012 m m m m Weighted average number of ordinary shares 685 686 684 685

Basic Diluted Basic Diluted 2013 2013 2012 2,3 2012 2,3 Earnings per share Pence Pence Pence Pence Continuing operations Earnings per ordinary share 2.5 2.5 17.9 17.9 Amortisation of acquired intangible assets 3.0 3.0 3.8 3.8 Other non-underlying items 14.5 14.5 10.0 10.0 Underlying earnings per ordinary share 20.0 20.0 31.7 31.7 Discontinued operations Earnings per ordinary share (7.6) (7.6) (12.6) (12.6) Amortisation of acquired intangible assets 0.2 0.2 0.6 0.6 Other non-underlying items 5.2 5.2 14.1 14.1 Underlying earnings per ordinary share (2.2) (2.2) 2.1 2.1 Total operations Earnings per ordinary share (5.1) (5.1) 5.3 5.3 Amortisation of acquired intangible assets 3.2 3.2 4.4 4.4 Other non-underlying items 19.7 19.7 24.1 24.1 Underlying earnings per ordinary share 17.8 17.8 33.8 33.8

14 Dividends on ordinary shares Per share Amount Per share Amount 2013 2013 2012 2012 Pence £m Pence £m Proposed dividends for the year Interim – current year 5.60 38 5.60 38 Final – current year 8.50 58 8.50 58 14.10 96 14.10 96 Recognised dividends for the year Final – prior year 58 58 Interim – current year 38 38 96 96

The interim 2013 dividend was paid on 6 December 2013. Subject to approval at the Annual General Meeting on 15 May 2014, the final 2013 dividend will be paid on 4 July 2014 to holders on the register on 25 April 2014. The ordinary shares will be quoted ex-dividend on 23 April 2014.

2013 2012 £m £m Dividends on ordinary shares of the Company 96 96 Other dividends to non-controlling interests 1 1 Total recognised dividends for the year 97 97

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15 Intangible assets – goodwill Accumulated impairment Carrying Cost losses amount £m £m £m At 1 January 2012 1,325 (46) 1,279 Currency translation differences (34) 2 (32) Impairment charges in respect of Mainland European rail businesses (Note 10) – (95) (95) Business acquired 9 – 9 Businesses acquired – prior year (1) – (1) At 31 December 2012 1,299 (139) 1,160 Currency translation differences (9) – (9) Impairment charges in respect of Mainland European rail businesses (Note 10) – (38) (38) Business acquired – prior year (Note 32.1.4) (1) – (1) Reclassified to assets held for sale (134) 134 – Reclassified to assets held for sale and subsequently sold (Note 32.3.11) (64) – (64) At 31 December 2013 1,091 (43) 1,048

2013 2012 United United Rest of United United Rest of Carrying amounts of goodwill Kingdom States world Total Kingdom States world Total by segment £m £m £m £m £m £m £m £m Professional Services 13 165 57 235 10 169 58 237 Construction Services 326 356 25 707 329 362 61 752 Support Services 62 – – 62 125 – – 125 Infrastructure Investments 4 40 – 44 4 42 – 46 Group 405 561 82 1,048 468 573 119 1,160

Pre-tax Pre-tax discount discount 2013 rate 2012 rate Carrying amounts of goodwill by cash generating unit £m % £m % Parsons Brinckerhoff 235 12.5 237 13.7 Construction Services UK 261 10.7 263 10.8 Construction Services US 356 12.8 362 12.9 Other 196 9.1–12.1 298 9.0–12.0 Group total 1,048 1,160

The recoverable amount of goodwill is based on value in use. Cash flow forecasts are based on the expected workload of each cash-generating unit (CGU) giving consideration to the current level of confirmed and anticipated orders. Cash flow forecasts for the next three years are based on the Group’s 2014 budget and strategic roadmap. The other key inputs in assessing each CGU are its revenue growth rate and discount rate. The revenue growth rates have been applied to cash flows after three years into perpetuity and have been derived from estimated GDP growth rates based on published data for the economic environment of each CGU less 1.0% to reflect current economic uncertainties and their consequent estimated effect on public sector spending on infrastructure. The cash flows assume a residual value based on a multiple of earnings before interest and tax.

2013 2012 Professional Construction Construction Professional Construction Construction Services Services UK Services US Other Services Services UK Services US Other % % % % % % % % Inflation rate 2.4 2.4 2.4 2.4 2.2 2.2 2.2 2.2 Real growth rate 1.7 1.2 1.7 1.2 1.7 1.3 1.7 1.2 Nominal long-term revenue growth rate applied 4.1 3.6 4.1 3.6 3.9 3.5 3.9 3.4

Sensitivities The Group’s impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the discount rate and the long-term revenue growth rate. Except as noted below, a reasonable possible change in a single assumption will not give rise to impairment in any of the Group’s CGUs. Using a pre-tax discount rate of 12.1% and revenue growth rate of 2.6% the recoverable amount of the remaining goodwill in the continuing Mainland Europe rail business is £25m based on value in use, with consequent headroom of £6m. A 1.0% increase in the discount rate and a 1.0% reduction in the growth rate would lead to a further impairment of £1m. The recoverable amount of the Blackpool International Airport goodwill is £4m with headroom of £nil, based on the value in use of the trading business and the fair value of the land. Any decrease in the fair value of the land will lead to a commensurate impairment of the goodwill.

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16 Intangible assets – other Infrastructure Customer Customer Brand Investments Software contracts relationships names intangible and other Total £m £m £m £m £m £m Cost At 1 January 2012 236 145 58 – 39 478 Currency translation differences (9) (5) (1) – – (15) Additions – – – – 25 25 Business acquired 1 1 1 – – 3 At 31 December 2012 228 141 58 – 64 491 Currency translation differences (4) (2) – – – (6) Additions – – – 21 17 38 Disposals – – – – (1) (1) Impairment – continuing operations – – – – (1) (1) Impairment – discontinued operations – – – – (1) (1) Reclassified from property plant and equipment (Note 17) – – – – 2 2 Reclassified to assets held for sale (Note 12) (1) (2) – – (6) (9) Reclassified to assets held for sale and subsequently sold (Note 32.3.11) (3) (14) (3) – (3) (23) At 31 December 2013 220 123 55 21 71 490 Accumulated amortisation At 1 January 2012 (122) (79) (31) – (7) (239) Currency translation differences 5 3 1 – – 9 Charge for the year – continuing operations (16) (14) (9) – (4) (43) Charge for the year – discontinued operations – (5) (1) – – (6) At 31 December 2012 (133) (95) (40) – (11) (279) Currency translation differences 2 2 1 – – 5 Charge for the year – continuing operations (10) (11) (9) – (3) (33) Charge for the year – discontinued operations (1) (1) – – – (2) Disposals – – – – 1 1 Reclassified from property plant and equipment (Note 17) – – – – (1) (1) Reclassified to assets held for sale (Note 12) 1 1 – – 5 7 Reclassified to assets held for sale and subsequently sold (Note 32.3.11) 3 11 2 – – 16 At 31 December 2013 (138) (93) (46) – (9) (286) Carrying amount At 31 December 2013 82 30 9 21 62 204 At 31 December 2012 95 46 18 – 53 212

The Group reached financial close on a student accommodation project in which the Group has demand risk and therefore, under IFRIC 12 Service Concession Arrangements, recognises an intangible asset as “Infrastructure Investments intangible”. Software and other primarily includes software of the UK shared service centre and operating companies with a cost of £59m (2012: £45m) and accumulated amortisation of £3m (2012: £1m). Of the total software, £58m (2012: £49m) is internally generated software with a cost of £62m (2012: £50m) and accumulated amortisation of £4m (2012: £1m). Intangible assets are amortised on a straight-line basis over their expected useful lives, which are one to four years for customer contracts, three to 10 years for customer relationships, three to seven years for software, and up to five years for brand names, except for customer contracts and relationships relating to Parsons Brinckerhoff, Barnhart and Balfour Beatty Investments US which are amortised on a basis matching the returns earned over the life of the underlying contracts and relationships. These contracts have a duration of up to eight years for customer contracts and relationships relating to Parsons Brinckerhoff and Barnhart and up to 50 years for customer contracts relating to Balfour Beatty Investments US. The Infrastructure Investments intangible is amortised on a straight-line basis over the life of the project which is 50 years. The software for the UK shared service centre and operating companies is amortised on a basis matching its usage profile over its seven-year life. The Group’s knowledge sharing and collaboration software is amortised on a basis matching its usage profile over its five-year life. Other intangible assets are amortised up to 10 years.

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17 Property, plant and equipment 17.1 Movements Group Assets in Land and Plant and course of buildings equipment construction Total £m £m £m £m Cost or valuation At 1 January 2012 122 562 4 688 Currency translation differences (4) (9) – (13) Additions – continuing operations 6 34 – 40 Additions – discontinued operations 1 8 – 9 Disposals (8) (77) – (85) Impairment (5) – – (5) Transfers – 4 (4) – At 31 December 2012 112 522 – 634 Currency translation differences (1) (3) – (4) Additions – continuing operations 20 39 12 71 Disposals – continuing operations (16) (45) – (61) Impairment reversal 3 – – 3 Reclassified to software (Note 16) – (2) – (2) Additions – discontinued operations – 11 – 11 Disposals – discontinued operations – (3) – (3) Reclassified to assets held for sale (Note 12) (10) (82) – (92) Reclassified to assets held for sale and subsequently sold (Note 32.3.11) – (25) – (25) At 31 December 2013 108 412 12 532 Accumulated depreciation At 1 January 2012 (45) (355) – (400) Currency translation differences 1 5 – 6 Charge for the year – continuing operations (10) (41) – (51) Charge for the year – discontinued operations – (13) – (13) Disposals 5 66 – 71 At 31 December 2012 (49) (338) – (387) Currency translation differences – 2 – 2 Charge for the year – continuing operations (10) (40) – (50) Charge for the year – discontinued operations – (6) – (6) Disposals – continuing operations 7 41 – 48 Disposals – discontinued operations – 3 – 3 Reclassified to software (Note 16) – 1 – 1 Reclassified to assets held for sale (Note 12) 4 46 – 50 Reclassified to assets held for sale and subsequently sold (Note 32.3.11) – 15 – 15 At 31 December 2013 (48) (276) – (324) Carrying amount At 31 December 2013 60 136 12 208 At 31 December 2012 63 184 – 247

The carrying amount of the Group’s property, plant and equipment held under finance leases was £5m (2012: £7m). The Company has no property, plant and equipment held under finance leases. Except for land and assets in the course of construction, the costs of property, plant and equipment are depreciated on a straight-line basis over their expected useful lives. Buildings are depreciated at 2.5% pa or over the term of the lease, and plant and equipment is depreciated at 4% to 33% pa.

17.2 Analysis of carrying amount of land and buildings Group Group 2013 2012 £m £m Freehold 18 31 Long leasehold – over 50 years unexpired 5 5 Short leasehold 37 27 60 63

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18 Investments in joint ventures and associates 18.1 Movements

Net assets Loans Provisions Total £m £m £m £m At 1 January 2012 293 264 (91) 466 Currency translation differences (5) – – (5) Income recognised – continuing operations2,3 92 – – 92 Income recognised – discontinued operations2,3 4 – – 4 Fair value revaluation of PPP financial assets 374 – – 374 Fair value revaluation of cash flow hedges (7) – – (7) Actuarial losses on retirement benefit obligations2 (4) – – (4) Tax on items taken directly to equity (86) – – (86) Dividends (58) – – (58) Additions 20 – – 20 Disposals (68) (9) – (77) Write-down of investment in Exeter International Airport (12) – – (12) Loans advanced – 27 – 27 Loans repaid – (12) – (12) Provisions utilised – – 4 4 At 31 December 2012 543 270 (87) 726 Currency translation differences (5) – – (5) Income recognised – continuing operations 71 – – 71 Fair value revaluation of PPP financial assets (Note 30.1) (167) – – (167) Fair value revaluation of cash flow hedges (Note 30.1) 65 – – 65 Actuarial gains on retirement benefit obligations (Note 30.1) 3 – – 3 Tax on items taken directly to equity (Note 30.1) 28 – – 28 Dividends (47) – – (47) Additions§ 26 – – 26 Disposals (18) (36) – (54) Fair value of retained interest in CNDR (Note 32.3.9) 6 3 – 9 Loans advanced – 29 – 29 Loans repaid – (2) – (2) Provisions utilised (43) (44) 87 – Reclassified to assets held for sale (Note 12) (8) – – (8) Reclassified to assets held for sale and subsequently sold (Note 32.3.11) (8) – – (8) At 31 December 2013 446 220 – 666

§ Includes £4m non-cash addition 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

The principal joint ventures and associates are shown in Note 41. The original cost of the Group’s investments in joint ventures and associates was £137m (2012: £199m). The Group’s share of borrowings of joint ventures and associates is shown in Note 18.2. The amount which was supported by the Group and the Company was £nil (2012: £nil), relating to the Group’s share of guaranteed borrowings. The borrowings of the PPP joint venture and associate entities are repayable over periods extending up to 2048. The non-recourse borrowings arise under facilities taken out by project specific joint venture and associate concession companies. The borrowings of each concession company are secured by a combination of fixed and floating charges over that concession company’s interests in its project’s assets and revenues and the shares in the concession company held by its immediate parent company. A significant part of these loans has been swapped into fixed rate debt by the use of interest rate swaps. As disclosed in Note 34, the Group has committed to provide its share of further equity funding of joint ventures and associates in Infrastructure Investments’ projects and military housing concessions. Further, in respect of a number of these investments the Group has committed not to dispose of its equity interest until construction is complete. As is customary in such projects, banking covenants restrict the payment of dividends and other distributions. Provisions utilised of £87m (2012: £4m) relate to the investments in Metronet BCV Ltd and Metronet SSL Ltd. On 18 July 2007 a PPP Administrator was appointed to the principal trading subsidiaries (Infracos) of these companies. On 27 May 2008 the business and the majority of assets and liabilities of the Infracos was transferred to new companies owned by TfL and on 11 December 2009 the Infracos entered into compulsory liquidation.

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18 Investments in joint ventures and associates continued 18.2 Share of results and net assets of joint ventures and associates

Infrastructure Investments Professional Construction Support North Infrastructure Services Services Services UK^ America Fund Total Total 2013 2013 2013 2013 2013 2013 2013 2013 Income statement – continuing operations £m £m £m £m £m £m £m £m Revenue 13 971 33 356 – – 356 1,373 Underlying operating profit1 – 38 1 11 6 – 17 56 Investment income – 2 – 164 – – 164 166 Finance costs – – – (142) – – (142) (142) Profit before taxation – 40 1 33 6 – 39 80 Taxation – (3) – (6) – – (6) (9) Profit after taxation – 37 1 27 6 – 33 71 Balance sheet Non-current assets Intangible assets – goodwill – 29 – – – – – 29 – Infrastructure Investments intangible – – – 23 – – 23 23 – other – 6 – 6 – – 6 12 Property, plant and equipment – 41 – 8 – – 8 49 PPP financial assets – – – 2,292 – – 2,292 2,292 Military housing projects – – – – 83 – 83 83 Other non-current assets – 40 – 45 – – 45 85 Infrastructure Fund investment – – – – – 11 11 11 Current assets Cash and cash equivalents 2 202 3 192 – – 192 399 Other current assets 1 341 8 45 – – 45 395 Total assets 3 659 11 2,611 83 11 2,705 3,378 Current liabilities Borrowings – non-recourse – – – (47) – – (47) (47) Other current liabilities (2) (431) (8) (160) – – (160) (601) Non-current liabilities Borrowings – recourse – (44) – – – – – (44) Borrowings – non-recourse – – – (1,744) – – (1,744) (1,744) Other non-current liabilities – (49) – (227) – – (227) (276) Total liabilities (2) (524) (8) (2,178) – – (2,178) (2,712) Net assets 1 135 3 433 83 11 527 666

^ Including Singapore. 1 Before non-underlying items (Notes 2.11 and 10).

The Group’s investment in military housing joint ventures’ and associates’ projects is recognised at the initial equity investment plus the value of the Group’s accrued preferred return from the underlying projects. The military housing joint ventures and associates have total non-recourse net borrowings of £1,858m (2012: £1,787m). Note 41(f) details the Group’s military housing projects. The Group has elected to recognise its investment in Balfour Beatty Infrastructure Partners LP (Infrastructure Fund) at fair value with movements in fair value being recognised through the income statement. The Infrastructure Fund holds multiple assets which are valued by third parties. Capital expenditure authorised and contracted which has not been provided for in the financial statements of the joint ventures and associates amounted to £2m (2012: £2m). As a result of the net fair value revaluations of PPP financial assets and cash flow hedges on three Infrastructure Investments concessions, where the borrowings are non-recourse to the Group, the Group has not recognised cumulative fair value revaluation charges to other comprehensive income of £24m (2012: £15m).

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18 Investments in joint ventures and associates continued 18.2 Share of results and net assets of joint ventures and associates continued

Infrastructure Investments Professional Construction Support North Services Services Services UK^ America Infrastructure Total Total 2012 20122,3 2012 2,3 2012 2012 2012 2012 20122,3 Income statement – continuing operations £m £m £m £m £m £m £m £m Revenue 21 818 44 422 – 5 427 1,310 Underlying operating profit1 1 54 2 19 6 – 25 82 Investment income – – – 180 – – 180 180 Finance costs – – – (155) – (2) (157) (157) Profit before taxation 1 54 2 44 6 (2) 48 105 Taxation – (5) – (9) – 1 (8) (13) Profit after taxation 1 49 2 35 6 (1) 40 92 Balance sheet Non-current assets Intangible assets – goodwill – 30 – – – 12 12 42 – Infrastructure Investments intangible – – – 18 – – 18 18 – other – 2 – 1 – – 1 3 Property, plant and equipment – 41 7 1 – 13 14 62 PPP financial assets – – – 2,641 – – 2,641 2,641 Military housing projects – – – – 65 – 65 65 Other non-current assets – 11 2 11 – 3 14 27 Current assets Cash and cash equivalents 5 202 9 211 – 2 213 429 Other current assets 2 357 27 95 – 15 110 496 Total assets 7 643 45 2,978 65 45 3,088 3,783 Current liabilities Borrowings – recourse – (45) – – – – – (45) Borrowings – non-recourse – – – (58) – – (58) (58) Other current liabilities (3) (441) (37) (206) – (6) (212) (693) Non-current liabilities Borrowings – non-recourse – – – (1,871) – (38) (1,909) (1,909) Other non-current liabilities (3) (33) – (315) – (1) (316) (352) Total liabilities (6) (519) (37) (2,450) – (45) (2,495) (3,057) Net assets 1 124 8 528 65 – 593 726

^ Including Singapore. 1 Before non-underlying items (Notes 2.11 and 10). 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 3 Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

18.3 Infrastructure Investments’ investments

Net Net investment Reserves Total investment Reserves Total 2013 2013 2013 2012 2012 2012 £m £m £m £m £m £m Roads 107 201 308 101 238 339 Hospitals 62 (8) 54 78 45 123 Schools 37 9 46 54 4 58 Other concessions 15 10 25 1 7 8 UK^ 221 212 433 234 294 528 North America 64 19 83 53 12 65 Infrastructure Fund 11 – 11 – – – Total investments 296 231 527 287 306 593

^ Including Singapore.

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18 Investments in joint ventures and associates continued 18.4 Cash flow from/(to) joint ventures and associates

Infra- North structure North UK^ America Fund Other Total UK^ America Other Total Cash flows from investing 2013 2013 2013 2013 2013 2012 2012 2012 2012 activities £m £m £m £m £m £m £m £m £m Dividends from joint ventures and associates 20 8 – 19 47 25 7 26 58 Subordinated debt interest received 26 – – – 26 20 – – 20 Investments in and loans to joint ventures and associates (16) (21) (11) (1) (49) (15) (12) – (27) Equity – (21) – (1) (22) – (12) – (12) Subordinated debt invested (18) – – – (18) (27) – – (27) Subordinated debt repaid 2 – – – 2 12 – – 12 Other investments and loans – – (11) – (11) – – – – Disposal of investments in joint ventures 102 – – 1 103 81 – – 81 Net cash flow from/(to) joint ventures and associates 132 (13) (11) 19 127 111 (5) 26 132

^ Including Singapore.

18.5 Share of reserves of joint ventures and associates

PPP Currency Accumulated Hedging financial translation Total profit/(loss) reserve assets reserve (Note 30.1) £m £m £m £m £m Balance at 1 January 2012 174 (233) 181 22 144 Currency translation differences – – – (2) (2) Income recognised – continuing operations2,3 92 – – – 92 Income recognised – discontinued operations2,3 4 – – – 4 Fair value revaluation of PPP financial assets – – 374 – 374 Fair value revaluation of cash flow hedges – (7) – – (7) Actuarial movements on retirement benefit liabilities2 (4) – – – (4) Tax on items taken directly to equity – (5) (81) – (86) Dividends (58) – – – (58) Recycling of revaluation reserves to the income statement on disposal – 27 (75) – (48) Reserves disposed (72) – – – (72) Balance at 31 December 2012 136 (218) 399 20 337 Currency translation differences – – – (2) (2) Income recognised – continuing operations 71 – – – 71 Fair value revaluation of PPP financial assets – – (167) – (167) Fair value revaluation of cash flow hedges – 65 – – 65 Actuarial movements on retirement benefit liabilities 3 – – – 3 Tax on items taken directly to equity – (21) 49 – 28 Dividends (47) – – – (47) Recycling of revaluation reserves to the income statement on disposal – 20 (35) – (15) Reserves disposed 3 – – – 3 Other movements – (3) 5 – 2 Balance at 31 December 2013 166 (157) 251 18 278

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19 Investments 19.1 Group Available- for-sale Held to investments maturity in mutual bonds funds Total £m £m £m Balance at 1 January 2012 46 50 96 Currency translation differences – (2) (2) Fair value movements – 4 4 Additions – 5 5 Maturities/disposals (4) (5) (9) Balance at 31 December 2012 42 52 94 Currency translation differences – (1) (1) Fair value movements – 7 7 Interest accrued – 3 3 Additions 7 5 12 Maturities/disposals (14) (6) (20) Balance at 31 December 2013 35 60 95

The held to maturity bonds are held by the Group’s captive insurance company, Delphian Insurance Company Ltd, and comprise fixed rate bonds or treasury stock with an average yield to maturity of 1.61% (2012: 1.20%) and weighted average life of 2.7 years (2012: 2.3 years). The fair value of the bonds is £38m (2012: £45m), determined by the market price of the bonds at the reporting date. The maximum exposure to credit risk at 31 December 2013 is the carrying amount. These bonds have been pledged as security for letters of credit issued in respect of Delphian Insurance Company Ltd. The available-for-sale investments in mutual funds comprise holdings in a number of funds, based on employees’ investment elections, in respect of the deferred compensation obligations of the Group as disclosed in Note 28. The fair value of the available-for-sale investments is £60m (2012: £52m), determined by the market price of the funds at the reporting date.

19.2 Company 2013 2012 £m £m Investment in subsidiaries 1,666 2,072 Investment in joint ventures and associates 3 3 Provisions (102) (138) 1,567 1,937

20 PPP financial assets Schools Roads Other Total £m £m £m £m Balance at 1 January 2012 215 217 25 457 Income recognised in the income statement – construction contract margin – 1 – 1 – interest income 12 16 3 31 (Losses)/gains recognised in the statement of comprehensive income – fair value movements (3) 34 – 31 Other movements – cash expenditure 10 38 19 67 – cash received (17) (26) (2) (45) Balance at 31 December 2012 217 280 45 542 Income recognised in the income statement – construction contract margin – 1 – 1 – interest income (Note 8) 12 17 4 33 (Losses)/gains recognised in the statement of comprehensive income – fair value movements (14) (21) 10 (25) Other movements – cash expenditure – 40 22 62 – cash received (19) (25) (15) (59) – disposal of interest in CNDR (Note 32.3.11) – (99) – (99) Balance at 31 December 2013 196 193 66 455

Assets constructed by PPP subsidiary concession companies are classified as available-for-sale financial assets and are denominated in sterling. The maximum exposure to credit risk at the reporting date is the fair value of the PPP financial assets. The Group disposed of a 75% interest in Connect CNDR Holdings Ltd (CNDR) during the year and retained a 25% interest which is accounted for as a joint venture. Refer to Note 32.3.9. There were no impairment provisions in 2013 or 2012.

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21 Inventories 2013 2012 £m £m Unbilled non-construction work in progress 51 76 Raw materials and consumables 39 50 Development and housing land and work in progress 42 32 Manufacturing work in progress 1 6 Finished goods and goods for resale 2 8 135 172

22 Construction contracts 2013 2012 Contracts in progress at reporting date £m £m Due from construction contract clients 631 634 Due to construction contract clients (360) (382) 271 252

The aggregate amount of costs incurred plus recognised profits less recognised losses for all contracts in progress that had not reached practical completion at the reporting date was £14,484m from continuing operations (2012: £15,647m from total operations).

23 Trade and other receivables Group Group Company Company 2013 2012 2013 2012 £m £m £m £m Current Trade receivables 827 851 – – Less: Provision for impairment of trade receivables (26) (29) – – 801 822 – – Other receivables 76 69 17 6 Due from subsidiaries – – 1,243 1,144 Due from joint ventures and associates 28 38 – – Due from jointly controlled operations 3 1 – – Contract retentions receivable# 198 199 – – Accrued income 21 38 1 – Prepayments 47 74 1 2 Due on acquisitions 16 – – – 1,190 1,241 1,262 1,152 Non-current Trade receivables 2 2 – – Other receivables 2 9 – – Due from joint ventures and associates 11 2 17 19 Contract retentions receivable# 98 67 – – Prepayments – 4 – 4 Due on acquisitions – 16 – – 113 100 17 23 Total trade and other receivables 1,303 1,341 1,279 1,175 Comprising Financial assets (Note 39) 1,256 1,263 1,278 1,169 Non-financial assets – prepayments 47 78 1 6 1,303 1,341 1,279 1,175

# Include £295m (2012: £265m) construction contract retentions receivable.

Based on prior experience, an assessment of the current economic environment and a review of the financial circumstances of individual clients, the Directors believe no further credit risk provision is required in respect of trade receivables. The Directors consider that the carrying values of current trade and other receivables approximate their fair values. The fair value of non-current trade and other receivables amounts to £108m (2012: £98m) and has been determined by discounting future cash flows using yield curves and exchange rates prevailing at the reporting date.

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23 Trade and other receivables continued Movement in the provision for impairment of trade receivables

Group Group 2013 2012 £m £m Balance at 1 January (29) (46) Currency translation differences (2) 1 (Charged)/credited to the income statement – continuing operations – additional provisions (12) (9) – unused amounts reversed 10 22 Utilised during the year 1 3 Balance at 31 December* (32) (29)

* Includes £6m (2012: £nil) provisions relating to non-current trade receivables.

Maturity profile of impaired trade receivables

Group Group 2013 2012 £m £m Up to three months 1 1 Three to six months 1 3 Six to nine months 2 1 Nine to 12 months 8 1 More than 12 months 20 23 32 29

At 31 December 2013, trade receivables of £217m (2012: £245m) were past due but not impaired. These relate to a number of individual clients where there is no reason to believe that the receivable is not recoverable.

Maturity profile of trade receivables past due but not impaired

Group Group 2013 2012 £m £m Up to three months 153 154 Three to six months 24 39 Six to nine months 12 15 Nine to 12 months 7 10 More than 12 months 21 27 217 245

The Company had no provision for impairment of trade receivables and no trade receivables that were past due but not impaired in either year.

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24 Trade and other payables Group Group Company Company 2013 2012 2013 2012 £m £m £m £m Current Trade and other payables 857 900 4 10 Accruals 1,044 1,130 14 8 Deferred income 6 15 – 1 Advance payments on contracts* 14 19 – – VAT, payroll taxes and social security 115 108 13 14 Due to subsidiaries – – 1,301 1,421 Due to joint ventures and associates 1 15 – 5 Dividends on preference shares 5 5 5 5 Due on acquisitions 4 22 – – 2,046 2,214 1,337 1,464 Non-current Trade and other payables 112 94 – – Accruals 20 16 – – Deferred income 7 4 – – Advance payments on contracts – 1 – – Due to joint ventures and associates 27 25 25 25 Due on acquisitions 16 19 – – 182 159 25 25 Total trade and other payables 2,228 2,373 1,362 1,489 Comprising Financial liabilities (Note 39) 2,025 2,130 1,349 1,474 Non-financial liabilities – accruals not at amortised cost 61 96 – – – deferred income 13 19 – 1 – advance payments on contracts 14 20 – – – VAT, payroll taxes and social security 115 108 13 14 2,228 2,373 1,362 1,489

* Includes £11m (2012: £14m) advances on construction contracts.

Maturity profile of the Group’s non-current financial liabilities at 31 December

Due to joint Trade ventures and other and Due on payables Accruals associates acquisitions Total 2013 2013 2013 2013 2013 £m £m £m £m £m Due within one to two years 73 9 – 2 84 Due within two to five years 8 7 5 7 27 Due after more than five years 31 4 22 7 64 112 20 27 16 175 Fair values 97 17 18 16 148

Due to joint Trade ventures and other and Due on payables Accruals associates acquisitions Total 2012 2012 2012 2012 2012 £m £m £m £m £m Due within one to two years 47 6 – 3 56 Due within two to five years 14 7 3 7 31 Due after more than five years 33 3 22 9 67 94 16 25 19 154 Fair values 80 15 18 19 132

The fair value of non-current trade and other payables has been determined by discounting future cash flows using yield curves and exchange rates prevailing at the reporting date.

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25 Provisions Group Company Contract Employee Other Other provisions provisions provisions Total provisions £m £m £m £m £m At 1 January 2012 147 30 60 237 6 Currency translation differences (3) – – (3) – Transfers (6) 15 (9) – – Charged/(credited) to the income statement – additional provisions 74 43 22 139 – – unused amounts reversed (49) (14) (8) (71) (1) Utilised during the year (38) (17) (19) (74) – At 31 December 2012 125 57 46 228 5 Currency translation differences (2) – – (2) – Transfers 3 (4) 1 – – Charged/(credited) to the income statement – continuing operations – additional provisions 67 23 22 112 – – unused amounts reversed (32) (14) (12) (58) (3) – discount unwind – – (1) (1) – Utilised during the year (48) (17) (7) (72) (1) (Credited)/charged to the income statement – discontinued operations (1) 1 – – – Reclassified to assets held for sale (Note 12) (10) (3) – (13) – Reclassified to assets held for sale and subsequently sold (Note 32.3.11) – (1) – (1) – At 31 December 2013 102 42 49 193 1

Group Group Company Company Contract Employee Other Contract Employee Other Other Other provisions provisions provisions Total provisions provisions provisions Total provisions provisions 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 £m £m £m £m £m £m £m £m £m £m Due within one year 57 15 28 100 71 26 19 116 – – Due within one to two years 16 10 7 33 35 18 11 64 1 1 Due within two to five years 20 14 10 44 16 12 10 38 – 4 Due after more than five years 9 3 4 16 3 1 6 10 – – 102 42 49 193 125 57 46 228 1 5

Contract provisions include construction insurance liabilities, principally in the Group’s captive insurance companies, and defect and warranty provisions on contracts, primarily construction contracts, that have reached practical completion. Employee provisions are principally liabilities relating to employers’ liability insurance retained in the Group’s captive insurance companies and provisions for employee termination liabilities arising from the Group’s restructuring programmes. Other provisions principally comprise: motor and other insurance liabilities in the Group’s captive insurance companies; legal claims and costs, where provision is made for the Directors’ best estimate of known legal claims, investigations and legal actions in progress; property-related provisions, mainly onerous lease commitments, some of which arise from the Group’s restructuring programmes; and environmental provisions. The Group takes actuarial advice when establishing the level of provisions in the Group’s captive insurance companies and certain other categories of provision. Insurance-related provisions within these categories were £86m (2012: £95m) as follows: Contract provisions £52m (2012: £49m); Employee provisions £28m (2012: £35m); and Other, mainly motor provisions £6m (2012: £11m). Restructuring provisions within these categories were £12m (2012: £26m) as follows: Contract provisions £nil (2012: £nil); Employee provisions £7m (2012: £14m); and Other, mainly property-related, provisions £5m (2012: £12m). The restructuring provisions reduced substantially in the period as staff left the businesses and the property portfolio was streamlined by the surrender or other disposal of leases.

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26 Cash and cash equivalents and borrowings 26.1 Group

Current Non-current Total Current Non-current Total 2013 2013 2013 2012 2012 2012 £m £m £m £m £m £m Unsecured borrowings at amortised cost – bank overdrafts (78) – (78) (10) – (10) – loans under committed facilities expiring in less than one year – – – – – – – loans under committed facilities expiring in more than one year – – – (410) – (410) – US private placement (Note 26.2) – (212) (212) – – – – liability component of convertible bonds (Note 26.3) – (221) (221) – – – – other loans (91) – (91) (56) (2) (58) Secured borrowings at amortised cost – finance leases (1) (2) (3) (1) (3) (4) (170) (435) (605) (477) (5) (482) Cash and deposits at amortised cost 472 – 472 515 – 515 Term deposits at amortised cost 67 – 67 2 – 2 Non-PPP cash and cash equivalents 539 – 539 517 – 517 369 (435) (66) 40 (5) 35 Non-recourse project finance loans at amortised cost with final maturity between 2027 and 2037 (9) (410) (419) (12) (381) (393) PPP cash and cash equivalents 65 – 65 25 – 25 56 (410) (354) 13 (381) (368) Net (borrowings)/cash 425 (845) (420) 53 (386) (333)

The PPP project finance sterling loans arise under non-recourse facilities taken out by project specific subsidiary concession companies. The loans of each concession company are secured by a combination of fixed and floating charges over that concession company’s interests in its project’s assets and revenues and the shares in the concession company held by its immediate parent company. A significant part of these loans has been swapped into fixed rate debt by the use of interest rate swaps. Included in cash and cash equivalents is restricted cash of: £17m (2012: £15m) held by the Group’s captive insurance company, Delphian Insurance Company Ltd, which is subject to Isle of Man insurance solvency regulations; £2m (2012: £nil) currently not readily remittable from Argentina; £1m (2012: £nil) held within construction project bank accounts; and £65m (2012: £25m) relating to the maintenance and other reserve accounts in the Infrastructure Investments subsidiaries. Cash, deposits and term deposits include the Group’s share of amounts held by jointly controlled operations of £144m (2012: £232m). The Group discloses its borrowings under committed facilities as current liabilities due to requirements in IAS 1. However the borrowings are drawn down under committed facilities expiring in more than one year and the Group believes they will be rolled forward within the terms of the facilities. Maturity profile of the Group’s borrowings at 31 December

PPP PPP non-recourse non-recourse project Finance Other project Finance Other finance leases borrowings Total finance leases borrowings Total 2013 2013 2013 2013 2012 2012 2012 2012 £m £m £m £m £m £m £m £m Due on demand or within one year (9) (1) (169) (179) (12) (1) (476) (489) Due within one to two years (10) (1) – (11) (9) (1) – (10) Due within two to five years (36) (1) (248) (285) (50) (1) (1) (52) Due after more than five years (364) – (185) (549) (322) (1) (1) (324) (419) (3) (602) (1,024) (393) (4) (478) (875)

The carrying values of the Group’s borrowings are equal to the fair values at the reporting date. The fair values are determined by discounting future cash flows using yield curves and exchange rates prevailing at the reporting date. Undrawn Group committed borrowing facilities at 31 December in respect of which all conditions precedent were satisfied

PPP PPP non-recourse non-recourse project Other project Other finance borrowings Total finance borrowings Total 2013 2013 2013 2012 2012 2012 £m £m £m £m £m £m Expiring in one year or less 36 – 36 41 – 41 Expiring in more than one year but not more than two years 38 – 38 36 55 91 Expiring in more than two years 26 990 1,016 56 540 596 100 990 1,090 133 595 728

26.2 US private placement In March 2013 the Group raised US$350m (£231m) of borrowings through a US private placement of a series of notes with an average coupon of 4.94% per annum and an average maturity of 9.3 years. At 31 December 2013, as a result of movements in exchange differences, the balance outstanding was £212m.

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26 Cash and cash equivalents and borrowings continued 26.3 Convertible bonds On 3 December 2013 the Group issued convertible bonds of £100,000 each maturing on 3 December 2018 at a total issue price of £252.7m and incurred transaction costs of £6.3m resulting in net proceeds of £246.4m. The bonds have a coupon of 1.875% per annum payable semi-annually in arrears and the initial conversion price has been set at £3.6692 per share. From 14 January 2014 until 14 days prior to final maturity one bond is convertible at the option of the holder into one preference share in Balfour Beatty Finance No 2 Ltd which is immediately transferred to the Company in exchange for the issue of ordinary shares in the Company. The bonds are a compound instrument, comprising an equity and a liability component. The fair value of the liability component at the date of issue, included under non-current liabilities, was £220m estimated using the prevailing market interest rate of 4.29% for a similar non-convertible instrument. The difference between the net proceeds of issue of the convertible bonds after the transaction costs and the fair value assigned to the liability component, representing the value of the equity conversion component, is included in equity holders’ funds. Refer to Note 29.3. The Group has the option to redeem the bonds from December 2015 under certain circumstances.

Convertible bonds 2013 Liability component recognised in the Balance Sheet £m Liability component at 1 January at amortised cost – Issued during the year 220 Interest accretion 1 Liability component at 31 December at amortised cost 221

The fair value of the liability component of the convertible bonds at 31 December 2013 was unchanged at £220m (2012: £nil). The finance cost of the convertible bonds is calculated using the effective interest method.

26.4 Company Current Non-current Total Current Non-current Total 2013 2013 2013 2012 2012 2012 £m £m £m £m £m £m Cash and deposits – – – 43 – 43 Unsecured borrowings at amortised cost – bank loans and overdrafts (106) – (106) (56) – (56) – loans under committed facilities – – – (410) – (410) – US private placement (Note 26.2) – (212) (212) – – – Net borrowings (106) (212) (318) (423) – (423)

The bank loans and overdrafts are sterling denominated, variable rate instruments and repayable on demand. Loans under committed facilities comprise £nil (2012: £410m) sterling denominated borrowings which are variable rate instruments repayable within one year.

27 Deferred tax 27.1 Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis. Net deferred tax position at 31 December Group Group Company Company 2013 20122 2013 2012 £m £m £m £m Deferred tax assets 122 116 – – Deferred tax liabilities (18) (10) (3) – 104 106 (3) –

Movement for the year in the net deferred tax position Group2 Company £m £m At 1 January 2012 89 (1) Credited to income statement# 6 – Credited to equity # 13 1 Businesses acquired (2) – At 31 December 2012 106 – Currency translation differences (1) – Credited to income statement – continuing operations# (13) – Credited to income statement – discontinued operations# – – Credited/(charged) to equity # 9 (3) Reclassified to assets held for sale 2 – Reclassified to assets held for sale and subsequently sold 1 – At 31 December 2013 104 (3)

# Group includes £6m charged (2012: £3m) to the income statement and £10m charged (2012: £5m) to equity in relation to the reduction in the UK corporation tax rate. 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

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27 Deferred tax continued 27.2 Group Depreciation in excess of Retirement Unrelieved Share- capital benefit trading based allowances liabilities2 losses payments Provisions Derivatives Total2 Deferred tax assets £m £m £m £m £m £m £m At 1 January 2012 17 74 15 3 17 10 136 Currency translation differences – 1 (1) – (1) – (1) Credited/(charged) to income statement 3 (13) 7 – 6 – 3 Credited/(charged) to equity – 17 – – – (5) 12 Business acquired – – – – (2) – (2) At 31 December 2012 20 79 21 3 20 5 148 Currency translation differences – (1) – – – – (1) Credited/(charged) to income statement – continuing operations (3) 2 (4) – (3) – (8) Credited/(charged) to income statement – discontinued operations – (1) – – – – (1) Credited/(charged) to equity – 15 – – – (7) 8 Reclassified to assets held for sale and subsequently sold (Note 32.3.11) (2) – – – (1) 2 (1) At 31 December 2013 15 94 17 3 16 – 145

Revaluation Preference Fair value Loss of properties Goodwill shares adjustments of IBAs Total Deferred tax liabilities £m £m £m £m £m £m At 1 January 2012 (1) (10) (6) (28) (2) (47) Currency translation differences – – – 1 – 1 Credited/(charged) to income statement – 3 – (1) 1 3 Credited to equity – – 1 – – 1 At 31 December 2012 (1) (7) (5) (28) (1) (42) Credited/(charged) to income statement – continuing operations – – – (5) – (5) Credited/(charged) to income statement – discontinued operations – 1 – – – 1 Credited to equity – – 1 – – 1 Reclassified to assets held for sale (Note 12) – – – 2 – 2 Reclassified to assets held for sale and subsequently sold (Note 32.3.11) – – – 2 – 2 At 31 December 2013 (1) (6) (4) (29) (1) (41)

Total net deferred tax asset 104

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

At the reporting date the Group had unrecognised tax losses from operations that arose over a number of years of approximately £452m (2012: £280m) which are available for offset against future profits. £15m (2012: £22m) will expire between five and 20 years after the year in which they arose, using losses incurred in earlier years before those incurred in later years, with the first expiry in 2015. The remaining losses may be carried forward indefinitely. At the reporting date the undistributed reserves for which deferred tax liabilities have not been recognised were £901m (2012: £905m) in respect of subsidiaries and £101m (2012: £128m) in respect of joint ventures and associates. No liability has been recognised in respect of these differences because either no temporary difference arises or the timing of any distribution is under the Group’s control and no distribution which gives rise to taxation is contemplated.

27.3 Company Deferred tax Deferred tax liability assets Share- Retirement Net deferred Preference based benefit tax assets/ shares payments liabilities Provisions Total (liability) Deferred tax assets and liabilities £m £m £m £m £m £m At 1 January 2012 (6) 2 1 2 5 (1) Credited/(charged) to equity# 1 – – – – 1 At 31 December 2012 (5) 2 1 2 5 – Charged to income statement – – – (1) (1) (1) Credited/(charged) to equity#,$ 1 (2) (1) – (3) (2) At 31 December 2013 (4) – – 1 1 (3)

# The Company includes £2m credited (2012: £nil) to equity in relation to the reduction in the UK corporation tax rate. $ On 1 February 2013, employees of the Company transferred to Balfour Beatty Group Employment Limited, a company established as the employing entity for the Balfour Beatty Group’s UK businesses, resulting in £3m (2012: £nil) being charged to equity.

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28 Retirement benefit liabilities 28.1 Group The Group, through trustees, operates a number of defined contribution and defined benefit pension schemes. Defined contribution schemes are those where the Group’s obligation is limited to the amount that it contributes to the scheme and the scheme members bear the investment and actuarial risks. Defined benefit schemes are schemes other than defined contribution schemes where the Group’s obligation is to provide specified benefits on retirement. IAS 19 Employee Benefits (Revised) (IAS 19 Revised) prescribes the accounting for defined benefit schemes in the Group’s financial statements. Obligations are calculated using the projected unit credit method and discounted to a net present value using the market yield on a high quality corporate bond. The pension expense relating to current service cost is charged to contracts or overheads based on the function of scheme members and is included in cost of sales and net operating expenses. The net finance cost arising from the expected interest income on plan assets and interest cost on scheme obligations is included in finance costs. Actuarial gains and losses are reported in the Statement of Comprehensive Income. The IAS 19 Revised accounting valuation is set out in Note 28.2. A different calculation is used for the formal triennial funding valuations undertaken by the scheme trustees to determine the future company contribution level necessary so that over time the scheme assets will meet the scheme obligations. The principal difference between the two methods is that under the funding basis the obligations are discounted using a rate of return reflecting the composition of the assets in the scheme, rather than the rate of return on a high quality corporate bond as required by IAS 19 Revised for the financial statements. Details of the latest formal triennial funding valuations are set out in Note 28.3. The assets of the schemes do not include any direct holdings of the Group’s financial instruments, nor any property occupied by, or other assets, of the Group. Principal schemes The Group’s principal schemes are the Balfour Beatty Pension Fund (BBPF), which includes defined contribution and defined benefit sections, and the Balfour Beatty Shared Cost Section of the Railways Pension Scheme (Railways Pension Scheme). The defined benefit sections of both schemes are funded and closed to new members with the exception of employees where employment has transferred to the Group under certain agreed arrangements. Pension benefits are based on employees’ pensionable service and their pensionable salary. The schemes operate under trust law and are managed and administered by Trustees on behalf of the members in accordance with the terms of the Trust deed and rules and relevant legislation. Defined benefit contributions are determined in consultation with the Trustees, after taking actuarial advice. The Trustees are responsible for establishing the investment strategy and ensuring that there are sufficient assets to meet the cost of current and future benefits. These schemes expose the Group to investment and actuarial risks where additional contributions may be required if assets are not sufficient to pay future pension benefits: −−Investment risk: Equity returns are a key determinant of investment return but the investment portfolio is also subject to a range of other risks typical of the investments held, for example, credit risk on corporate bond holdings. −−Actuarial risk: The ultimate cost of providing pension benefits is affected by inflation rates and members’ life expectancy. The net present value of the obligations is affected by the market yield on a high quality corporate bond used to discount the obligations. Changes in the principal actuarial assumptions based on market data, such as inflation and the discount rate, and experience, such as life expectancy, expose the Group to fluctuations in the net IAS 19 Revised liability and the net finance cost. BBPF The investment strategy of the BBPF is to hold assets of appropriate liquidity and marketability to generate income and capital growth. The BBPF invests partly in a diversified range of assets including equities and hedge funds in anticipation that, over the longer term, they will grow in value faster than the obligations. The equities are in the form of pooled funds and are a combination of UK, other developed market and emerging market equities. The remaining BBPF assets are principally fixed and index-linked bonds and swaps in order to match the duration and inflation exposure of the obligations and enhance the resilience of the funding level of the scheme. The performance of the assets is measured against market indices. Following the previous formal triennial funding valuation of the BBPF carried out as at 31 March 2010, the Group agreed to make ongoing deficit payments to the BBPF of £48m per annum from April 2010, increasing each year by CPI (capped at 5%) plus 50% of any increase in the Company’s dividend in excess of capped CPI. Following the merger of the Parsons Brinckerhoff Scheme with the BBPF the Group agreed to make additional deficit payments of £11m per annum, with the first payment made in October 2012. During 2012 the Group also agreed to make additional conditional deficit contributions of £1m per month, payable quarterly in arrears, if the BBPF funding levels in any given month were below certain funding targets set out in the BBPF journey plan, with the first payment made in January 2013. A formal triennial funding valuation of the BBPF was carried out as at 31 March 2013. As a result the Group agreed with effect from April 2013 to make revised ongoing deficit payments of £50m per annum, increasing to: £55m per annum from April 2016; £60m per annum from April 2017; and £65m per annum from April 2018 to May 2020, increasing each year by CPI (minimum 0% and capped at 5%) plus 200% of any increase in the Company’s dividend in excess of capped CPI. If the Company makes any one-off return of value to shareholders such as a special dividend, share buy-back, capital payment or similar before the next actuarial valuation is agreed, there will be an additional increase in the deficit payment for the following year only, calculated as the regular deficit payment for that year multiplied by 75%, multiplied by the value of the one-off return of value, divided by the total of the regular dividends for the year in which the one-off return was made. The Group has the ability to use surplus funds in the defined benefit section of the BBPF to pay its contributions towards future service benefits in the defined benefit and defined contribution sections of the scheme. In 2012 a pension increase exchange (PIE) offer to certain current pensioners, widows and widowers of the BBPF, to forego their entitlement to future non-statutory inflation increases in return for a higher pension than their current entitlement, resulted in a £2m reduction to the pension liability and a consequential net past service cost credit of £2m.

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28 Retirement benefit liabilities continued 28.1 Group continued BBPF continued On 31 August 2013 the majority of members of the BBPF ceased to accrue future defined benefits and became deferred members resulting in a curtailment charge of £53m, recognised as a non-underlying item, of which £2m related to discontinued operations. During 2013 various group restructurings resulted in an additional £1m curtailment charge. Railways Pension Scheme The economic interest of the Group in the Railways Pension Scheme is approximately 60% of the scheme’s assets and liabilities based on the relevant provisions of the trust deed and rules and trustee guidelines regarding future surplus apportionments and deficit financing. The Railways Pension Scheme invests in a range of pooled investment funds intended to generate a combination of capital growth and income and as determined by the Trustee, taking account of the characteristics of the obligations and the Trustee’s attitude to risk. The majority of the Railways Pension Scheme’s assets that are intended to generate additional returns, over the rate at which the obligations are expected to grow, are invested in a single pooled “growth” fund. This fund is invested in a wide range of asset classes and the fund manager RPMI has the discretion to vary the asset allocation to reflect its views on the relative attractiveness of different asset classes at any time. The remaining assets in the Railways Pension Scheme are principally fixed and index-linked bonds. Following the formal triennial funding valuation carried out as at 31 December 2010, the Group agreed to make ongoing fixed deficit contributions of £1.3m per annum plus an additional 1% of the active members’ payroll costs. Parsons Brinckerhoff Scheme During the year ended 31 December 2012, Parsons Brinckerhoff Ltd operated a defined benefit scheme (Parsons Brinckerhoff Scheme) which had been closed to new members since 31 July 2003. On 30 June 2012 the Parsons Brinckerhoff Scheme merged with the BBPF and the Group agreed to make additional deficit payments of £11m per annum to the BBPF, with the first payment made in October 2012. On 28 June 2012 the Parsons Brinckerhoff Scheme released its legal charge over a Group leasehold property with a book value of £4m at 31 December 2011 in return for a one-off deficit contribution of £2.5m. The deficit contributions have been superseded by the deficit contributions agreed in the March 2013 BBPF formal triennial funding valuation. Other schemes Other schemes comprise unfunded post-retirement benefit obligations in Europe and North America, the majority of which are closed to new entrants, and deferred compensation schemes in the US, where an element of employees’ compensation is deferred and invested in available-for-sale assets (as disclosed in Note 19.1) in a trust, the assets of which are for the ultimate benefit of the employees but are available to the Group’s creditors in the event of insolvency. Membership of the principal schemes

Balfour Beatty Railways Balfour Beatty Railways Pension Fund Pension Scheme Pension Fund Pension Scheme 2013 2013 2012 2012 Defined Defined Defined Defined benefit Average benefit Average benefit Average benefit Average Number of obligations duration Number of obligations duration Number of obligations duration Number of obligations duration members £m Years members £m Years members £m2 Years members £m2 Years Defined benefit – active members 97 3 20 250 44 19 3,404 614 22 260 43 19 – deferred pensioners 13,876 1,372 23 1,433 54 18 11,887 794 24 1,476 52 18 – pensioners, widow(er)s and dependants 22,244 1,589 11 1,531 93 11 22,586 1,455 12 1,490 89 11 Defined contribution 13,238 – – – – – 10,373 – – – – – Total 49,455 2,964 16 3,214 191 14 48,250 2,863 17 3,226 184 14

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

28.2 IAS 19 accounting valuations Principal actuarial assumptions for the IAS 19 accounting valuations of the Group’s principal schemes

Balfour Balfour Beatty Railways Beatty Railways Pension Pension Pension Pension Fund Scheme Fund Scheme 2013 2013 2012 2012 % % % % Discount rate 4.35 4.35 4.40 4.40 Inflation rate – RPI 3.30 3.30 2.90 2.90 – CPI 2.10 2.10 2.20 2.20 Future increases in pensionable salary – certain members that have a protected right to a defined benefit membership 2.10 2.10 2.20 2.20 – other members – 2.10 4.40 2.20 Rate of increase in pensions in payment (or such other rate as is guaranteed) 3.05 2.25 2.80 2.20

In the year ended 31 December 2012, the Group reassessed the difference between the RPI and CPI measures of price inflation from 0.90% to 0.70%. The reduction was applied following consideration of proposals made by the Office for National Statistics (ONS) to change the method to calculate RPI and independent advice received from the Group’s actuaries. This change in assumptions gave rise to a £25m actuarial increase in liabilities which was recognised in the Statement of Comprehensive Income.

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28 Retirement benefit liabilities continued 28.2 IAS 19 accounting valuations continued Principal actuarial assumptions for the IAS 19 accounting valuations of the Group’s principal schemes continued In January 2013 the market RPI expectation increased by 0.30% following an announcement by the ONS that there would be no material change in the calculation of RPI. As a result of this announcement and following independent advice received from the Group’s actuaries, the Group reassessed the difference between RPI and CPI measures of price inflation from 0.7% to 1.0% in 2013 reducing the pension liability by £38m which was recognised in the Statement of Comprehensive Income. In December 2013, following independent advice from the Group’s actuaries based on further announcements by the ONS, the Group reassessed the difference between RPI and CPI measures of price inflation from 1.0% in January 2013 to 1.2% reducing the pension liability by a further £36m which was recognised in the Statement of Comprehensive Income. The BBPF actuary undertakes regular mortality investigations based on the experience exhibited by pensioners of the BBPF and due to the size of the membership of the BBPF (49,455 members at 31 December 2013) is able to make comparisons of this experience with the mortality rates set out in the various published mortality tables. The actuary is also able to monitor changes in the exhibited mortality over time. This research is taken into account in the Group’s mortality assumptions across its various defined benefit schemes. The mortality assumptions as at 31 December 2013 have been updated to reflect the experience of Balfour Beatty pensioners for the period 1 April 2003 to 31 March 2013. The mortality tables adopted for the 2013 and 2012 IAS 19 valuations are the SAPS tables with a multiplier of 101% for male and for female members (2012: 90% for male and 103% for female members) and 110% for female widows and dependants (2012: 103%); all with an improvement rate in line with the CMI core projection model to 2013 (2012: flat 1.6% pa to 2013), plus future improvements from 2013 in line with the CMI core projection model applicable to each member‘s year of birth with a long term rate of 1.25% pa for male and 1.00% pa for female members.

2013 2012 Average life Average life expectancy expectancy at 65 years of age at 65 years of age Male Female Male Female Members in receipt of a pension 22.4 24.4 21.9 24.4 Members not yet in receipt of a pension (current age 50) 23.7 25.6 23.2 25.6

In December 2012 allowance was made for approximately three future years of life expectancy for former members of the Parsons Brinckerhoff Scheme. The 2013 investigation revealed that the life expectancy for these members is similar to other members of the BBPF, therefore mortality assumptions have been aligned in 2013. The BBPF defined contribution employer contributions paid and charged to the income statement have been separately identified in the table below and the defined contribution section assets and liabilities amounting to £259m (2012: £200m) have been excluded from the tables on pages 132 to 134. Defined contribution charges for other schemes include contributions to multi-employer pension schemes. Amounts recognised in the Income Statement

Balfour Balfour Beatty Railways Beatty Railways Parsons Pension Pension Other Pension Pension Brinckerhoff Other Fund Scheme schemes Total Fund Scheme Scheme schemes Total 2013 2013 2013 2013 2012 2,3 2012 2 2012 2 20122,3 20122,3 £m £m £m £m £m £m £m £m £m Continuing operations Current service cost (23) (2) (5) (30) (34) (2) – (5) (41) Past service cost credit – – – – 2 – – – 2 Curtailment cost – ceasing future accrual (51) – – (51) – – – – – – restructuring costs (1) – – (1) (2) – – – (2) Defined contribution charge (32) – (14) (46) (30) – (4) (16) (50) Included in employee costs (Note 7) (107) (2) (19) (128) (64) (2) (4) (21) (91) Interest income 102 6 – 108 100 7 3 – 110 Interest cost (108) (7) (2) (117) (105) (8) (4) (2) (119) Net finance cost (Note 9) (6) (1) (2) (9) (5) (1) (1) (2) (9) Total charged to income statement from continuing operations (113) (3) (21) (137) (69) (3) (5) (23) (100) Discontinued operations Current service cost (Note 7) (6) – (1) (7) (6) – – (1) (7) Curtailment cost – ceasing future accrual (Note 7) (2) – – (2) – – – – – Defined contribution costs (Note 7) (6) – (4) (10) (5) – – (1) (6) Net finance cost (1) – (1) (2) – – – (1) (1) Total charged to income statement from discontinued operations (15) – (6) (21) (11) – – (3) (14) Total charged to income statement (128) (3) (27) (158) (80) (3) (5) (26) (114)

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28 Retirement benefit liabilities continued 28.2 IAS 19 accounting valuations continued Amounts recognised in the Statement of Comprehensive Income

Balfour Balfour Beatty Railways Beatty Railways Parsons Pension Pension Other Pension Pension Brinckerhoff Other Fund Scheme schemes Total Fund Scheme Scheme schemes Total 2013 2013 2013 2013 20122 20122 20122 2012 2 20122 £m £m £m £m £m £m £m £m £m Actuarial movements on pension scheme obligations (63) (5) (5) (73) (174) (11) 2 (11) (194) Actuarial movements on pension scheme assets (48) 4 – (44) 82 2 – (1) 83 Total actuarial movements recognised in the Statement of Comprehensive Income (Note 30.1) (111) (1) (5) (117) (92) (9) 2 (12) (111) Cumulative actuarial movements recognised in the Statement of Comprehensive Income (446) (34) (20) (500) (329) (33) (6) (15) (383)

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

The actual return on plan assets was a gain of £79m (2012: £210m). Amounts recognised in the Balance Sheet

Balfour Balfour Beatty Railways Beatty Railways Pension Pension Other Pension Pension Other Fund Scheme schemes† Total Fund2 Scheme2 schemes†,2 Total2 2013 2013 2013 2013 2012 2012 2012 2012 £m £m £m £m £m £m £m £m Present value of obligations (2,964) (191) (74) (3,229) (2,863) (184) (99) (3,146) Fair value of plan assets 2,641 153 1 2,795 2,665 147 1 2,813 Liability in the balance sheet (323) (38) (73) (434) (198) (37) (98) (333)

† Available-for-sale investments in mutual funds of £60m (2012: £52m) are held by the Group to satisfy the Group’s deferred compensation obligations (Note 19.1). 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

The defined benefit obligation comprises £73m (2012: £97m) arising from wholly unfunded plans and £3,156m (2012: £3,049m restated) arising from plans that are wholly or partly funded. Movement in the present value of obligations

Balfour Balfour Beatty Railways Beatty Railways Parsons Pension Pension Other Pension Pension Brinckerhoff Other Fund Scheme schemes Total Fund Scheme Scheme schemes Total2,3 2013 2013 2013 2013 20122,3 2012 2012 20122,3 2012 £m £m £m £m £m £m £m £m £m At 1 January2 (2,863) (184) (99) (3,146) (2,465) (169) (187) (89) (2,910) Currency translation differences – – 1 1 – – – 2 2 Current service cost (23) (2) (5) (30) (34) (2) – (5) (41) Past service cost credit – – – – 2 – – – 2 Curtailment costs – ceasing future accrual (51) – – (51) – – – – – – restructuring (1) – – (1) (2) – – – (2) Finance cost (108) (7) (2) (117) (105) (8) (4) (2) (119) Income statement costs relating to discontinued operations (24) – (2) (26) (23) – – (2) (25) Actuarial movements from reassessing the difference between RPI and CPI 62 12 – 74 (20) (5) – – (25) Other financial actuarial movements (126) (13) 4 (135) (165) (5) 2 (8) (176) Actuarial movements from changes in demographic assumptions (25) (3) – (28) 45 4 – – 49 Experience gains/(losses) 26 (1) (9) 16 (34) (5) – (3) (42) Total actuarial movements (63) (5) (5) (73) (174) (11) 2 (11) (194) Contributions from members (1) – – (1) (1) – – – (1) Benefits paid 139 7 8 154 124 6 4 8 142 Parsons Brinckerhoff Scheme merger – – – – (185) – 185 – – Reclassified to liabilities held for sale (Note 12) – – 30 30 – – – – – Reclassified to liabilities held for sale and subsequently sold (Note 32.3.11) 31 – – 31 – – – – – At 31 December (2,964) (191) (74) (3,229) (2,863) (184) – (99) (3,146)

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28 Retirement benefit liabilities continued 28.2 IAS 19 accounting valuations continued On 12 December 2013 the Group disposed of its UK facilities management business, Balfour Beatty WorkPlace (BBW), a participating employer in the BBPF. The Group retains the obligation to provide pension benefits arising on past service accrual in the BBPF for the majority of BBW employees. BBW retains the obligation to provide pension benefits arising on past service accrual for protected members of the BBPF resulting in a settlement loss for the Group based on actuarial assumptions at the date of disposal of £2m, a reduction in liabilities of £31m, and a reduction in assets of £33m. Refer to Note 32.3.11. Movement in the fair value of plan assets

Balfour Balfour Beatty Railways Beatty Railways Parsons Pension Pension Other Pension Pension Brinckerhoff Other Fund Scheme schemes Total Fund Scheme Scheme schemes Total 2013 2013 2013 2013 20122,3 2012 2012 20122,3 20122,3 £m £m £m £m £m £m £m £m £m At 1 January 2,665 147 1 2,813 2,370 141 127 2 2,640 Interest income – continuing operations 102 6 – 108 100 7 3 – 110 Interest income – discontinued operations 15 – – 15 17 – – – 17 Actuarial movements (48) 4 – (44) 82 2 – (1) 83 Contributions from employer – regular funding 21 2 – 23 33 2 – – 35 – ongoing deficit funding – continuing operations 49 1 – 50 55 1 2 – 58 – ongoing deficit funding – discontinued operations 2 – – 2 – – – – – – conditional deficit funding 7 – – 7 – – – – – – one-off deficit funding – – – – – – 3 – 3 Contributions from members – – – – 1 – – – 1 Benefits paid (139) (7) – (146) (124) (6) (4) – (134) Parsons Brinckerhoff Scheme merger – – – – 131 – (131) – – Reclassified to liabilities held for sale and subsequently sold (Note 32.3.11) (33) – – (33) – – – – – At 31 December 2,641 153 1 2,795 2,665 147 – 1 2,813

Fair value of the assets held by the schemes at 31 December Balfour Beatty Railways Pension Pension Other Fund Scheme schemes Total Value Value Value Value 2013 2013 2013 2013 £m £m £m £m Return-seeking 1,115 117 – 1,232 – Developed nation equities 451 – – 451 – Emerging market equities 108 – – 108 – Emerging market debt and currency 148 – – 148 – Hedge funds 335 – – 335 – Return-seeking growth pooled funds – 117 – 117 – Other return-seeking assets 73 – – 73 Liability matching bond-type assets 1,462 36 – 1,498 – Corporate bonds 617 – – 617 – Fixed interest gilts 438 – – 438 – Index-linked gilts 373 – – 373 – Liability matching pooled funds – 36 – 36 – Interest and inflation rate swaps 34 – – 34 Other 64 – 1 65 Total 2,641 153 1 2,795 Value Value Value Value 2012 2012 2012 2012 £m £m £m £m Return-seeking 1,065 110 – 1,175 – Developed nation equities 428 – – 428 – Emerging market equities 107 – – 107 – Emerging market debt and currency 147 – – 147 – Hedge funds 328 – – 328 – Return-seeking growth pooled funds – 110 – 110 – Other return-seeking assets 55 – – 55 Liability matching bond-type assets 1,470 37 – 1,507 – Corporate bonds 613 – – 613 – Fixed interest gilts 417 – – 417 – Index-linked gilts 291 – – 291 – Liability matching pooled funds – 37 – 37 – Interest and inflation rate swaps 149 – – 149 Other 130 – 1 131 Total 2,665 147 1 2,813

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28 Retirement benefit liabilities continued 28.2 IAS 19 accounting valuations continued All assets have quoted prices in active markets with the exception of the following where the classification is in accordance with IFRS 13 Fair Value Measurement: • £99.2m of the corporate bonds (Level 2) • Interest and inflation rate swaps (Level 2) • Hedge funds (Level 3) • Return-seeking growth pooled funds (Level 3) • Other return-seeking assets (Level 3) • Liability matching pooled funds (Level 3) Estimated contributions expected to be paid to the Group’s principal defined benefit schemes during 2014

Balfour Beatty Railways Pension Pension Fund Scheme Total 2014 2014 2014 £m £m £m Regular funding 3 2 5 Ongoing deficit funding 51 1 52 Total 54 3 57

Sensitivity of the Group’s retirement benefit obligations at 31 December 2013 to different actuarial assumptions The sensitivity analysis below has been determined based on reasonably possible changes in assumptions occurring at the end of the reporting period. In each case the relevant change in assumption occurs in isolation from potential changes in other assumptions. In practice more than one variable is likely to change at the same time. The sensitivities have been calculated using the projected unit credit method. (Decrease)/ (Decrease)/ increase increase Percentage in obligations in obligations Obligations points/ Years % £m Increase in discount rate 0.5% (7.4) (232) Increase in market expectation of RPI inflation 0.5% 4.9 154 Increase in salary growth 0.5% – 2 Increase in life expectancy 1 year 3.3 104

Sensitivity of the Group’s retirement benefit assets at 31 December 2013 to changes in market conditions

(Decrease)/ (Decrease)/ increase increase Percentage in assets in assets Assets points % £m Increase in interest rates 0.5% (6.1) (170) Increase in market expectation of RPI inflation 0.5% 3.3 93

The asset sensitivities only take into account the impact of the changes in market conditions on bond type assets. The value of the Schemes’ return-seeking assets are not directly correlated with movements in interest rates or RPI inflation. Year end historical information for the Group’s retirement defined benefit schemes

2013 20122 20112 20102 20092 £m £m £m £m £m Present value of obligations (3,229) (3,146) (2,910) (2,780) (2,752) Fair value of assets 2,795 2,813 2,640 2,344 2,171 Deficit (434) (333) (270) (436) (581) Experience adjustment for obligations 16 (39) (11) 62 (9) Experience adjustment for assets (44) 83 148 128 135 Total deficit funding 59 61 113 80 35

2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

28.3 Latest formal triennial funding valuations Balfour Beatty Railways Pension Fund Pension Scheme £m £m Date of last formal triennial funding valuation 31/03/2013 31/12/2010 Scheme deficit Market value of assets 3,103 260 Present value of obligations (3,522) (268) Deficit in defined benefit scheme (419) (8) Funding level 88.1% 97.0%

28.4 Company Until 1 February 2013, certain employees of the Company were members of the BBPF. Retirement benefit assets, liabilities, income and expenditure relating to this fund were allocated on an appropriate basis to Group companies participating in the scheme based on pensionable payroll for the year. On 1 February 2013 the employees of the Company and the net pension deficit allocated to the Company were transferred to Balfour Beatty Group Employment Ltd, which has been established as the employing entity for the Balfour Beatty Group’s UK businesses.

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29 Share capital 29.1 Ordinary shares of 50p each Issued Million £m At 1 January 2012 687 344 Shares issued 1 – At 31 December 2012 688 344 Shares issued 1 – At 31 December 2013 689 344

All issued ordinary shares are fully paid. Ordinary shares carry no right to fixed income but each share carries the right to one vote at general meetings of the Company.

Ordinary Ordinary shares Consideration shares Consideration 2013 2013 2012 2012 Ordinary shares issued during the year credited as fully paid Number £m Number £m Savings-related share options exercised 386,386 1 866,427 2 Executive share options exercised 270,895 – 229,220 – 657,281 1 1,095,647 2

At 31 December 2013 there were 1,364,265 share options outstanding under the Savings-Related Share Option Scheme (SAYE) which were granted between 2008 and 2010 (2012: 3,645,518 granted between 2007 and 2010). The weighted average exercise price is 242.1p (2012: 254.9p). No options have been granted under the SAYE since 2010. At 31 December 2013 there were 387,733 share options outstanding under the Executive Share Option Scheme (ESOS) which were granted in 2004 (2012: 689,049 granted between 2003 and 2004). These options are normally exercisable between three and 10 years after the grant date. Performance conditions have been met for all outstanding options under the ESOS. The weighted average exercise price is 227.3p (2012: 205.6p). No options have been granted under the ESOS since 2004.

29.2 Cumulative convertible redeemable preference shares of 1p each

Issued Million £m At 31 December 2012 and 2013 112 –

All issued preference shares are fully paid. During the current and prior year no preference shares were repurchased for cancellation by the Company. Holders of preference shares are entitled to a preferential dividend equivalent to a gross payment of 10.75p per preference share per annum, payable half-yearly. A preference dividend of 5.375p gross (4.8375p net) per cumulative convertible redeemable preference share of 1p was paid on 1 July 2013 in respect of the six months ended 30 June 2013. A preference dividend of 5.375p gross (4.8375p net) per cumulative convertible redeemable preference share was paid on 1 January 2014 in respect of the six months ended 31 December 2013. On 1 July 2020 any preference shares still outstanding are redeemable at £1 each, together with any arrears or accruals of dividend, unless the holder exercises any option granted by the Company to extend the redemption date. The maximum redemption value of all of the issued and outstanding preference shares, excluding any arrears or accruals of dividend, was £112m at 31 December 2013 (2012: £112m). At the option of the holder, preference shares are convertible on the first day of the next calendar month following receipt of the conversion notice into new Balfour Beatty plc ordinary shares effectively on the basis of 24.69136 ordinary shares for every 100 preference shares, subject to adjustment in certain circumstances. The Company is entitled to convert all outstanding preference shares into ordinary shares if there are fewer than 44,281,239 preference shares in issue or if the average of the closing mid-market price for a Balfour Beatty plc ordinary share during a 30-day period exceeds 810p, subject to adjustment in certain circumstances. The preference shares carry no voting rights at a general meeting of the Company, except where the dividend is six months or more in arrears, or where the business of the meeting includes a resolution which directly affects the rights and privileges attached to the preference shares or a resolution for the winding up of the Company. On winding up the Company, holders are entitled to receive the sum of £1 per preference share, together with any arrears or accruals of dividend, in priority to any payment on any other class of shares. The preference shares are a compound instrument, comprising an equity and a liability component. The fair value of the liability component at the date of issue, included under non-current liabilities, was estimated using the prevailing market interest rate of 13.5% for a similar non-convertible instrument. The difference between the proceeds of issue of the preference shares and the fair value assigned to the liability component, representing the value of the equity conversion component, is included in equity holders’ equity, net of deferred tax.

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29 Share capital continued

29.2 Cumulative convertible redeemable preference shares of 1p each 2013 2012 Liability component recognised in the Balance Sheet £m £m Redemption value of shares in issue at 1 January 112 112 Equity component (18) (17) Deferred tax and interest element (2) (4) Liability component at 1 January at amortised cost 92 91 Interest accretion 2 1 Liability component at 31 December at amortised cost 94 92

The fair value of the liability component of the preference shares at 31 December 2013 amounted to £113m (2012: £120m). The fair value is determined by using the market price of the preference shares at the reporting date. Interest expense on the preference shares is calculated using the effective interest method.

29.3 Convertible bonds On 3 December the Group issued convertible bonds for net proceeds of £246m. The convertible bond is a compound instrument comprising equity and liability components. The fair value of the liability component was estimated as £220m using the prevailing market rate at the date of issue for a similar non-convertible instrument. The difference between the net proceeds and the fair value of the liability represents the embedded option to convert the liability into the Company’s ordinary shares being the equity component of £26m. Refer to Note 26.

30 Movements in equity 30.1 Group Other reserves Equity Share component of joint of ventures’ preference and shares Called- Share associates’ and PPP Currency Non- up share premium Special reserves convertible Hedging financial translation Merger Retained controlling capital account reserve (Note 18.5) bonds reserves assets reserve reserve Other profits2 interests Total2 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 £m £m £m £m £m £m £m £m £m £m £m £m £m At 31 December 20122 344 63 25 337 17 (109) 93 21 249 18 252 3 1,313 Profit for the year – – – 71 – – – – – – (106) – (35) Currency translation differences – – – (2) – – – (12) – – – – (14) Actuarial movements on retirement benefit liabilities – – – 3 – – – – – – (117) – (114) Fair value revaluations – PPP financial assets – – – (167) – – (25) – – – – – (192) – cash flow hedges – – – 65 – 55 – – – – – – 120 – available-for-sale investments in mutual funds – – – – – – – – – 7 – – 7 Recycling of revaluation reserves to the income statement on disposal@ – – – (15) – 10 (15) (1) – – – – (21) Tax on items recognised in other comprehensive income@ – – – 28 1 (15) 8 – – (2) 17 – 37 Total comprehensive income/ (expense) for the year – – – (17) 1 50 (32) (13) – 5 (206) – (212) Ordinary dividends – – – – – – – – – – (96) (1) (97) Joint ventures’ and associates’ dividends – – – (47) – – – – – – 47 – – Issue of ordinary shares – 1 – – – – – – – – – – 1 Issue of convertible bonds – – – – 26 – – – – – – – 26 Movements relating to share-based payments – – – – – – – – – (1) 5 – 4 Reserve transfers relating to joint venture and associate disposals – – – 3 – – – – – – (3) – – Other transfers – – (1) 2 – 3 (5) – – – 1 – – At 31 December 2013 344 64 24 278 44 (56) 56 8 249 22 – 2 1,035

@ Recycling of revaluation reserves to the income statement on disposal has no associated tax effect. 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38).

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30 Movements in equity CONTINUED 30.1 Group continued Other reserves Equity Share component of joint of ventures’ preference and shares Called- Share associates’ and PPP Currency Non- up share premium Special reserves4 convertible Hedging financial translation Merger Retained controlling capital account reserve (Note 18.5) bonds reserves assets reserve reserve Other profits2,4 interests Total2,4 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 £m £m £m £m £m £m £m £m £m £m £m £m £m At 1 January 20122 344 61 27 144 17 (97) 67 75 249 17 359 4 1,267 Profit for the year – – – 96 – – – – – – (61) – 35 Currency translation differences – – – (2) – – – (54) – – – – (56) Actuarial movements on retirement benefit liabilities – – – (4) – – – – – – (111) – (115) Fair value revaluations – PPP financial assets – – – 374 – – 31 – – – – – 405 – cash flow hedges – – – (7) – (12) – – – – – – (19) – available-for-sale investments in mutual funds – – – – – – – – – 4 – – 4 Recycling of revaluation reserves to the income statement on disposal@,4 – – – (48) – – – – – – – – (48) Tax on items recognised in other comprehensive income – – – (86) – – (5) – – (1) 20 – (72) Total comprehensive income/ (expense) for the year – – – 323 – (12) 26 (54) – 3 (152) – 134 Ordinary dividends – – – – – – – – – – (96) (1) (97) Joint ventures’ and associates’ dividends – – – (58) – – – – – – 58 – – Issue of ordinary shares – 2 – – – – – – – – – – 2 Movements relating to share-based payments – – – – – – – – – (2) 9 – 7 Reserve transfers relating to joint venture and associate disposals4 – – – (72) – – – – – – 72 – – Other transfers – – (2) – – – – – – – 2 – – At 31 December 2012 344 63 25 337 17 (109) 93 21 249 18 252 3 1,313

@ Recycling of revaluation reserves to the income statement on disposal has no associated tax effect. 2 Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). 4 Re-presented to reflect the recycling of revaluation reserves to the income statement in the statement of comprehensive income instead of the statement of changes in equity.

30.2 Company Other reserves Equity component of preference Called-up Share shares and share premium Special convertible Merger Retained capital account reserve bonds reserve Other profits Total £m £m £m £m £m £m £m £m At 1 January 2012 344 61 27 17 249 74 333 1,105 Profit for the year – – – – – – 84 84 Actuarial movements on retirement benefit liabilities – – – – – – (3) (3) Tax on items recognised in other comprehensive income – – – – – – 1 1 Total comprehensive income for the year – – – – – – 82 82 Ordinary dividends – – – – – – (96) (96) Issue of ordinary shares – 2 – – – – – 2 Movements relating to share-based payments – – – – – (2) 5 3 Other transfers – – (2) – – – 2 – At 31 December 2012 344 63 25 17 249 72 326 1,096 Profit for the year – – – – – – 39 39 Actuarial movements on retirement benefit liabilities – – – – – – 1 1 Tax on items recognised in other comprehensive income – – – 1 – – (4) (3) Total comprehensive income for the year – – – 1 – – 36 37 Ordinary dividends – – – – – – (96) (96) Issue of ordinary shares – 1 – – – – – 1 Issue of convertible bonds – – – 26 – – – 26 Movements relating to share-based payments – – – – – (3) 4 1 Other transfers – – (1) – – – 1 – At 31 December 2013 344 64 24 44 249 69 271 1,065 The retained profits of Balfour Beatty plc are wholly distributable. By special resolution on 13 May 2004, confirmed by the court on 16 June 2004, the share premium account was reduced by £181m and the £4m capital redemption reserve was cancelled, effective on 25 June 2004, and a special reserve of £185m was created. This reserve becomes distributable to the extent of future increases in share capital and share premium account, of which £1m occurred in 2013 (2012: £2m). Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 138

30 Movements in equity CONTINUED 30.3 The retained profits in the Group and the retained profit of the Company are stated net of investments in Balfour Beatty plc ordinary shares acquired by the Group’s employee discretionary trust, the Balfour Beatty Employee Share Ownership Trust, to satisfy awards under the Balfour Beatty Performance Share Plan and the Balfour Beatty Deferred Bonus Plan. In 2013, 0.7m (2012: 1.0m) shares were purchased at a cost of £1.6m (2012: £3.0m). The market value of the 3.3m (2012: 3.7m) shares held by the Trust at 31 December 2013 was £9.3m (2012: £10.1m). The carrying value of these shares is £10.0m (2012: £11.8m). Following confirmation of the performance criteria at the end of the performance period in the case of the Performance Share Plan, and at the end of the vesting period in the case of the Deferred Bonus Plan, the appropriate number of shares will be unconditionally transferred to participants. In 2013, no shares were transferred to participants in relation to the April 2010 awards under the Performance Share Plan (2012: no shares for the April 2009 award under the Performance Share Plan), and 1.1m shares were transferred to participants in relation to awards under the Deferred Bonus Plan (2012: 1.0m). The trustees have waived the rights to dividends on shares held by the Trust. Other reserves in the Group and the Company include £5.1m relating to unvested Performance Share Plan awards (2012: £4.7m), £1.1m relating to unvested share options (2012: £2.9m), and £3.3m relating to unvested Deferred Bonus Plan awards (2012: £3.4m).

31 Notes to the Statements of Cash Flows Continuing operations Non- underlying Discontinued Underlying items operations items1 (Note 10) (Note 12) Group Group Company Company 2013 2013 2013 2013 2012 2013 2012 Notes £m £m £m £m £m £m £m 31.1 Cash (used in)/generated from operations Profit/(loss) from operations 203 (155) (47) 1 73 75 104 Share of results of joint ventures and associates – continuing operations 18 (71) – – (71) (92) – – Share of results of joint ventures and associates – discontinued operations 18 – – – – (4) – – Dividends received – continuing operations – – – – – (90) (130) Dividends received – discontinued operations – – (1) (1) – – – Depreciation of property, plant and equipment 17 50 – 6 56 64 – – Amortisation of other intangible assets 16 3 30 2 35 49 – – Pension deficit payments – ongoing deficit funding 28.2 (50) – (2) (52) (58) – (2) – conditional deficit funding 28.2 (7) – – (7) – – – – one-off deficit funding 28.2 – – – – (3) – – Pension past service cost credit 28.2 – – – – (2) – – Pension curtailment charge – ceasing future accrual 28.2 – 51 2 53 – – – Pension curtailment charge – restructuring 28.2 – 1 – 1 2 – – Movements relating to share-based payments 33 6 – – 6 6 – 1 Profit on disposal of investments in PPP concessions 32.3 (82) – – (82) (52) – – Profit on disposal of property, plant and equipment (3) (3) – (6) (7) – – Contingent consideration for acquisitions 32.2 (4) – – (4) – – – Net gain on disposal of other businesses 32.3 – – (11) (11) – – – Write-down of investment in Exeter International Airport – – – – 12 – – Goodwill impairment in respect of Mainland European rail businesses 10.2 – – 38 38 95 – – Impairment of other intangible assets 16 – 1 1 2 – – – (Impairment reversal)/impairment of property, plant and equipment 17 – (3) – (3) 5 – – Impairment of inventory – – 1 1 4 – – Other non-cash items (1) – – (1) (1) – – Operating cash flows before movements in working capital 44 (78) (11) (45) 91 (15) (27) (Increase)/decrease in operating working capital (127) 3 7 (117) (310) 220 (52) Inventories and non-construction work in progress 5 – (3) 2 (37) – – Due from construction contract clients (93) – 12 (81) (33) – – Trade and other receivables (166) – (25) (191) 113 (34) 85 Due to construction contract clients 33 – – 33 (182) – – Trade and other payables 106 11 31 148 (161) 258 (137) Provisions (12) (8) (8) (28) (10) (4) – Cash (used in)/generated from operations (83) (75) (4) (162) (219) 205 (79)

1 Before non-underlying items (Notes 2.11 and 10).

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31 Notes to the Statements of Cash Flows CONTINUED Group Group Company Company 2013 2012 2013 2012 £m £m £m £m 31.2 Cash and cash equivalents Cash and deposits 472 515 – 43 Term deposits 67 2 – – PPP cash balances 65 25 – – Bank overdrafts (78) (10) (106) (56) 526 532 (106) (13)

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of less than three months and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. PPP Other Group Group Company Company 2013 2013 2013 2012 2013 2012 £m £m £m £m £m £m 31.3 Analysis of movement in net (borrowings)/cash Opening net (borrowings)/cash (368) 35 (333) 8 (423) (236) Currency translation differences – 3 3 (17) 19 – Net increase/(decrease) in cash and cash equivalents 40 (30) 10 (31) (93) 11 Proceeds from US private placement – (231) (231) – (231) – Proceeds from convertible bonds and interest accretion – liability component – (221) (221) – – – Proceeds from new loans (110) – (110) (350) – (230) Proceeds from new finance leases – (1) (1) – – – Repayment of loans 12 396 408 53 410 32 Repayment of finance leases – 2 2 4 – – Disposal of non-recourse borrowings (Note 32.3.11) 72 – 72 – – – Reclassified to assets held for sale (Note 12) – (19) (19) – – – Closing net borrowings (354) (66) (420) (333) (318) (423)

31.4 Borrowings During the year ended 31 December 2013 the significant movements in borrowings were: a drawdown of US private placement loans of £231m (2012: £nil); issuing unsecured convertible bonds with a liability component of £221m (2012: £nil); a drawdown of short term loans of £nil (2012: £286m); a net repayment of short term loans of £396m (2012: £32m); a £68m net increase (2012: £5m decrease) in bank overdrafts; an increase of £110m (2012: £64m increase) in non-recourse loans funding the development of financial assets in PPP subsidiaries; disposal of non-recourse borrowings in Connect CNDR Ltd £72m (2012: £nil) and repayment of £12m (2012: £21m) of non-recourse PPP loans.

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32 Acquisitions and disposals 32.1 Current and prior year acquisitions 32.1.1 There were no material acquisitions during the year ended 31 December 2013. 32.1.2 Deferred consideration paid during 2013 in respect of acquisitions completed in earlier years was £11m, £8m relating to the acquisition of Subsurface Group Inc (Subsurface) and £3m on other acquisitions. 32.1.3 In addition to the amounts shown above, £2m and £1m held in escrow at 31 December 2012 relating to the acquisitions of Power Efficiency and Office Projects respectively were paid during 2013. 32.1.4 The fair values of the acquired assets and liabilities disclosed as provisional at 31 December 2012 in respect of Subsurface were finalised during 2013 giving rise to a decrease in both goodwill and provisions of £1m.

32.2 Contingent consideration arrangements Parsons Brinckerhoff Howard Inc. S. Wright SpawMaxwell Subsurface Total £m £m £m £m £m Contingent consideration recoverable/(payable) At 31 December 2012 16 (9) (1) (1) 5 Movements – 9 1 – 10 At 31 December 2013 16 – – (1) 15

The fair value of the contingent consideration arrangements is estimated by applying the provisions of the purchase agreement to management’s assessment of possible outcomes and discounting the expected contract costs and insurance claim proceeds to their present value. The maximum amount that the Group could be required to pay or receive under the terms of the contingent consideration arrangements is: £11m payable or £16m receivable in respect of Parsons Brinckerhoff and £1m payable in respect of Subsurface. 32.2.1 The contingent consideration payable relating to Howard S. Wright (HSW) was settled in April 2013 with a final settlement of £6m, £3m of which was paid in cash and the remainder netted-off against notes receivable from the HSW sellers, resulting in a £3m gain. 32.2.2 £1m contingent consideration payable relating to SpawMaxwell was released to the income statement during the year.

32.3 Current year disposals Direct costs incurred, Amount indemnity recycled provisions from created and Non- Percentage Net cash Net assets revaluation fair value Underlying underlying disposed consideration disposed reserve uplift gain/(loss) gain/(loss) Notes Disposal date Entity/business % £m £m £m £m £m £m 32.3.1 1 March 2013 Rail Iberica SA* 100 – (5) 1 – – (4) Consort Healthcare 32.3.2 26 April 2013 (Tameside) Holdings Ltd^ 50 16 (11) 4 – 9 – Transform Schools: Bassetlaw^; Birmingham^; 32.3.3 30 April 2013 Rotherham^; Stoke^ 50 43 (24) 5 – 24 – Consort Healthcare 32.3.4 20 June 2013 (Salford) Holdings Ltd^ 50 22 (10) – – 12 – 32.3.5 25 June 2013 Exeter and Devon Airport Ltd^ 60 – – – – – – 32.3.6 1 August 2013 Stassfurt Signalling Workshop – – (1) – – – (1) 32.3.7 31 October 2013 Balfour Sevan LLC^ 50 1 (1) – – – – Connect A30/A35 32.3.8 4 November 2013 Holdings Ltd^ 65 21 (9) 6 – 18 – 32.3.9 4 November 2013 Connect CNDR Holdings Ltd* 75 26 (16) 5 4 19 – 32.3.10 13 December 2013 Balfour Beatty WorkPlace* 100 155 (120) – (19) – 16 284 (197) 21 (15) 82 11

* Subsidiary. ^ Joint venture.

32.3.1 On 1 March 2013 the Group disposed of its interest in Rail Iberica SA (Rail Spain) to its local management for a cash consideration of €1. The disposal resulted in a net £4m loss being recognised as a non-underlying item, comprising a £5m loss in respect of the fair value of net assets disposed, including cash disposed of £7m, and a £1m gain on recycling revaluation reserves to the income statement. Refer to Note 10.2.2. The Group continues to guarantee certain bonds on behalf of Rail Spain until their expiry. 32.3.2 On 26 April 2013 the Group disposed of its 50% interest in Consort Healthcare (Tameside) Holdings Ltd for a cash consideration of £16m. This PPP disposal resulted in a net £9m gain being recognised in underlying operating profit, comprising a gain of £5m in respect of the disposal of the investment in the joint venture and a £4m gain on recycling revaluation reserves to the income statement. 32.3.3 On 30 April 2013 the Group disposed of its 50% interest in four Transform Schools projects: Bassetlaw; Birmingham; Rotherham; and Stoke, for a combined cash consideration of £43m. This PPP disposal resulted in a net gain of £24m being recognised within underlying operating profit, comprising a gain of £19m in respect of the disposal of the investments in the joint ventures and a £5m gain on recycling revaluation reserves to the income statement.

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32 Acquisitions and disposals 32.3 Current year disposals continued 32.3.4 On 20 June 2013 the Group disposed of its 50% interest in Consort Healthcare (Salford) Holdings Ltd for a cash consideration of £22m. This PPP disposal resulted in a net gain of £12m being recognised within underlying operating profit. There were no material revaluation reserves. 32.3.5 On 25 June 2013 the Group disposed of its interest in Exeter and Devon Airport Ltd held through an intermediary company wholly owned by its joint venture Regional & City Airports (Exeter) Holdings Ltd, in which the Group has a 60% interest. The proceeds from the sale were used to repay secured lenders. The carrying value of the Group’s investment had been written down to £nil in 2012 and the disposal therefore resulted in a £nil gain/loss. 32.3.6 On 1 August 2013, as part of its initial step in disposing of Rail Germany, the Group disposed of Stassfurt Signalling Workshop to its local management for a cash consideration of €1 resulting in a £1m loss on disposal. 32.3.7 On 31 October 2013, the Group disposed of its 50% interest in Balfour Sevan LLC for a cash consideration of £1m. The carrying value of the Group’s investment amounted to £1m and the disposal resulted in a £nil gain/loss for the Group. 32.3.8 On 4 November 2013, the Group disposed of a 65% interest in Connect A30/A35 Holdings Ltd for a cash consideration of £21m. This PPP disposal resulted in a gain of £18m being recognised within underlying operating profit, comprising a gain of £12m in respect of the disposal of the investment in the joint venture and a £6m gain in respect of revaluation reserves recycled to the income statement. The Group retains a 20% interest in the joint venture. 32.3.9 On 4 November 2013, the Group disposed of a 75% interest in Connect CNDR Holdings Ltd (CNDR) for a cash consideration of £26m. This PPP disposal resulted in a gain of £19m being recognised within underlying operating profit, comprising a gain of £10m in respect of the disposal of the investment in the subsidiary; a £5m gain in respect of revaluation reserves recycled to the income statement and £4m representing the fair value uplift of the interest retained. The Group retains a 25% interest in CNDR which will be accounted for as a joint venture using the equity method. 32.3.10 On 13 December 2013 the Group disposed of its UK facilities management business, Balfour Beatty WorkPlace for cash proceeds of £155m resulting in a net non-underlying gain of £16m recognised within discontinued operations after creating indemnity provisions of £10m and incurring transaction costs of £9m. Refer to Notes 12 and 28. 32.3.11 Subsidiaries net assets disposed BBW CNDR Rail Spain Total Net assets disposed Notes £m £m £m £m Intangible assets – goodwill 15 64 – – 64 Intangible assets – other 16 7 – – 7 Property, plant and equipment 17 10 – – 10 Investment in joint ventures and associates 18 8 – – 8 PPP financial assets 20 – 99 – 99 Deferred taxation 27 1 (2) – (1) Inventories and non-construction work in progress 23 – – 23 Trade and other receivables 120 2 5 127 Trade and other payables (121) (3) (6) (130) Provisions 25 (1) – – (1) Retirement benefit liabilities 28 2 – – 2 Current taxation – – (1) (1) Derivatives – (16) – (16) Cash 7 13 7 27 Non-recourse borrowings 31.3 – (72) – (72) Net assets of interest retained in CNDR – (5) – (5) 120 16 5 141 Indemnity liabilities raised on disposal 10 – – 10 Fair value uplift of retained investment in CNDR – (4) – (4) Reserves recycled to the income statement – (5) (1) (6) Costs directly related to the sale 9 – – 9 139 7 4 150 Net cash consideration (155) (26) – (181) (Gain)/loss on disposal (16) (19) 4 (31) Net cashflow effect Total consideration 155 26 – 181 Cash and cash equivalents disposed (7) (13) (7) (27) Transaction costs paid (2) – – (2) Net cash consideration 146 13 (7) 152

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32 Acquisitions and disposals continued 32.4 Prior year disposals 32.4.1 On 1 February 2012, the Group disposed of its 50% interest in the shares and loan notes issued by Transform Schools (North Lanarkshire) Holdings Ltd for a cash consideration of £18m. This disposal resulted in a gain of £8m being recognised within underlying operating profit, comprising a loss of £2m in respect of the disposal of the investment in the joint venture and a £10m gain in respect of revaluation reserves recycled to the income statement. 32.4.2 On 11 May 2012 the Group disposed of its 33.3% interest in the shares and loan notes issued by Health Management (UCLH) Holdings Ltd (HMU) for an agreed cash consideration of £66m. On this date the Group ceased to jointly control HMU by virtue of a put/ call structure with a preferred bidder. The other shareholders in HMU exercised pre-emption provisions in the shareholders’ agreement and the disposal was completed on 11 July 2012. As a consequence of the disposal, £2m was donated to the UCLH Charity and treated as a cost of disposal. This donation would not have taken place had the disposal of HMU not taken place. Additional transaction costs of £1m were incurred in respect of the disposal. The disposal resulted in a net gain of £44m being recognised within underlying operating profit, comprising a gain of £6m in respect of the disposal of the investment in the joint venture and a £38m gain in respect of revaluation reserves recycled to the income statement. 32.4.3 The above disposals resulted in a total underlying gain of £52m after recycling £48m revaluation reserves to the income statement through other comprehensive income.

33 Share-based payments The Company operates four equity-settled share-based payment arrangements, namely the Savings-Related Share Option Scheme (SAYE), the Executive Share Option Scheme (ESOS), the Performance Share Plan (PSP) and the Deferred Bonus Plan (DBP). The Group recognised total expenses relating to equity-settled share-based payment transactions since 7 November 2002 of £5.8m in 2013 (2012: £6.5m). Refer to the Remuneration Report for details of the various schemes and to Note 29.1.

33.1 Movements in share options SAYE options ESOS options Weighted Weighted Weighted Weighted average average average average exercise exercise exercise exercise price price price price 2013 2013 2012 2012 2013 2013 2012 2012 Number Pence Number Pence Number Pence Number Pence Outstanding at 1 January 3,645,518 254.9 6,200,690 263.5 689,049 205.6 755,224 203.2 Forfeited during the year (361,496) 248.4 (683,176) 256.6 – – – – Exercised during the year (386,386) 238.4 (866,427) 249.4 (270,895) 172.2 (66,175) 177.4 Expired during the year (1,533,371) 271.9 (1,005,569) 311.8 (30,421) 227.3 – – Outstanding at 31 December 1,364,265 242.1 3,645,518 254.9 387,733 227.3 689,049 205.6 Exercisable at 31 December 49,678 250.5 169,409 293.5 387,733 227.3 689,049 205.6

The weighted average share price at the date of exercise for those SAYE options exercised during the year was 266.3p (2012: 298.2p) and the weighted average remaining contractual life of SAYE options outstanding at 31 December 2013 is 1.0 year (2012: 1.6 years). The weighted average share price at the date of exercise for those ESOS options exercised during the year was 251.7p (2012: 287.7p) and the weighted average remaining contractual life of ESOS options outstanding at 31 December 2013 is 0.3 years (2012: 1.0 year).

33.2 Movements in share plans PSP conditional awards DBP conditional awards 2013 2012 2013 2012 Number Number Number Number Outstanding at 1 January 9,688,585 8,700,324 2,275,048 2,291,952 Granted during the year 3,815,247 4,177,096 575,983 916,940 Awards in lieu of dividends – – 102,609 117,718 Forfeited during the year (1,209,841) (457,142) (40,879) (33,337) Exercised during the year – – (1,115,426) (1,018,225) Expired during the year (2,678,815) (2,731,693) – – Outstanding at 31 December 9,615,176 9,688,585 1,797,335 2,275,048 Exercisable at 31 December – – 101,062 16,727

The weighted average remaining contractual life of those PSP awards outstanding at 31 December 2013 is 1.4 years (2012: 1.4 years). The weighted average share price at the date of exercise for those DBP awards exercised during the year was 243.3p (2012: 288.8p) and the weighted average remaining contractual life of DBP awards outstanding at 31 December 2013 is 1.3 years (2012: 1.3 years). The principal assumptions, including expected volatility determined from the historical weekly share price movements over the three-year period immediately preceding the award date, used by the consultants in the stochastic model for the PSP awards in 2013 subject to market conditions, were: Closing Calculated share Expected Expected Risk free fair value price before volatility of term of interest of an award date shares awards rate award Award date Pence % Years % Pence 16 April 2013 246.9 32.0 3.0 0.31 90.2

For the DBP awards in 2013, the fair value of the awards is the closing share price before award date.

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34 Commitments Capital expenditure authorised and contracted for which has not been provided for in the financial statements amounted to £7m (2012: £14m) in the Group and £nil (2012: £nil) in the Company. The Group has committed to provide its share of further equity funding and subordinated debt in Infrastructure Investments which have reached financial close. Refer to Note 41(h). In January 2013, the Balfour Beatty Infrastructure Partners Fund (Infrastructure Fund) reached first close with US$317m of total commitments, of which Balfour Beatty has committed US$110m. Since first close, total commitments have increased to US$521m. To date the Group has invested a net US$17m in the Infrastructure Fund. The Group leases land and buildings, equipment and other various assets under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The lease expenditure charged to the income statement is disclosed in Note 6.1.

Future operating lease expenditure commitments

Land and Land and buildings Other buildings Other 2013 2013 2012 2012 £m £m £m £m Group Due within one year 61 52 71 62 Due between one and five years 149 47 191 55 Due after more than five years 87 6 109 1 297 105 371 118 Company Due within one year – – 3 – Due between one and five years – – 3 – – – 6 –

Future committed operating lease income

Land and Land and buildings buildings 2013 2012 £m £m Group Due within one year 1 4 Due between one and five years 1 4 2 8 Company Due within one year – 3 Due between one and five years – 3 – 6

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35 Contingent liabilities The Company and certain subsidiary undertakings have, in the normal course of business, given guarantees and entered into counter indemnities in respect of bonds relating to the Group’s own contracts and given guarantees in respect of their share of certain contractual obligations of joint ventures and associates and certain retirement benefit liabilities of the Balfour Beatty Pension Fund and the Railways Pension Scheme. Where such agreements are entered into, they are considered to be and are accounted for as insurance arrangements. Guarantees are treated as contingent liabilities until such time as it becomes probable payment will be required under the terms of the guarantee. Provision has been made for the Directors’ best estimate of known legal claims, investigations and legal actions in progress. The Group takes legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice, that the action is unlikely to succeed, or that the Group cannot make a sufficiently reliable estimate of the potential obligation.

36 Related party transactions Joint ventures and associates The Group has contracted with, provided services to, and received management fees from, certain joint ventures and associates amounting to £777m (2012: £1,018m). These transactions occurred in the normal course of business at market rates and terms. In addition, the Group procured equipment and labour on behalf of certain joint ventures and associates which were recharged at cost with no markup. The amounts due to or from joint ventures and associates at the reporting date are disclosed in Notes 23 and 24 respectively.

Pension schemes The Group recharged the Balfour Beatty Pension Fund with the costs of administration and advisers’ fees borne by the Group amounting to £8m in 2013 (2012: £8m).

Rail Spain On 1 March 2013 Rail Spain was sold to its local management for a cash consideration of €1. Refer to Note 32.3.1.

Stassfurt Signalling Workshop On 1 August 2013 Stassfurt Signalling Workshop was sold to its local management for a cash consideration of €1. Refer to Note 32.3.6.

Key management personnel 2013 2012 Remuneration of key management personnel of the Company £m £m Short term benefits 2.001 3.957 Long term benefits 0.191 – Post-employment benefits 0.058 0.139 Payments for loss of office 0.588 – Share-based payments 1.284 1.714 4.122 5.810

Key management personnel comprise the executive Directors who are directly responsible for the Group’s activities and the non- executive Directors. The remuneration included above is that paid in respect of the period of the year during which the individuals were Directors. Further details of Directors’ emoluments, post-employment benefits and interests are set out in the 2013 Remuneration Report on pages 68 to 84. On 1 February 2013 the employees of the Company were transferred to Balfour Beatty Group Employment Ltd (BBGEL), which has been established as the employing entity for the Balfour Beatty Group’s UK businesses. During the year employee costs of £16m were recharged from BBGEL to the Company.

37 Events after the reporting date Disposal of Rail Scandinavia On 8 January 2014 the Group disposed of Rail Scandinavia to Strukton Rail resulting in a small gain.

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38 Prior year comparisons 38.1 Group In 2013 the Group adopted IAS 19 Employee Benefits (Revised) which increased the total Group net finance cost by £10m before tax in the income statement with a corresponding restatement of the actuarial movements in the statement of other comprehensive income. In addition, the Railway Pension Scheme liability was revalued resulting in a £5m reduction to the retirement benefit liability with deferred tax assets and opening retained profits being restated accordingly. The 2012 income statements have been re-presented to classify Rail Germany, Rail Scandinavia, Rail Spain and the UK facilities management business, Balfour Beatty WorkPlace as discontinued operations. Refer to Note 12. The effect on the financial statements is as follows.

As Effect of Effect of previously IAS 19 discontinued As reported Revised operations re-presented 2012 2012 2012 2012 year year year year Income statement £m £m £m £m Continuing operations Revenue including share of joint ventures and associates 10,896 – (930) 9,966 Share of revenue of joint ventures and associates (1,413) – 103 (1,310) Group revenue 9,483 – (827) 8,656 Underlying group operating profit1 212 – (20) 192 Share of results of joint ventures and associates 97 (1) (4) 92 Underlying profit/(loss) from operations1 309 (1) (24) 284 Investment income 62 – – 62 Finance costs (61) (9) 1 (69) Underlying profit/(loss) before taxation from continuing operations1 310 (10) (23) 277 Taxation on underlying profit from continuing operations (70) 2 7 (61) Underlying profit/(loss) for the period from continuing operations1 240 (8) (16) 216 Non-underlying items after tax from continuing operations (196) – 101 (95) Profit/(loss) for the period from continuing operations 44 (8) 85 121 Underlying profit/(loss) for the period from discontinued operations after tax – (1) 16 15 Non-underlying items after tax from discontinued operations – – (101) (101) Profit/(loss) for the period from discontinued operations – (1) (85) (86) Profit for the period 44 (9) – 35

1 Before non-underlying items (Note 10).

Earnings per share pence pence pence pence Basic earnings per ordinary share from continuing operations 6.5 (1.2) 12.6 17.9 Basic earnings per ordinary share from discontinued operations – – (12.6) (12.6) Basic earnings per ordinary share 6.5 (1.2) – 5.3 Diluted earnings per ordinary share from continuing operations 6.5 (1.2) 12.6 17.9 Diluted earnings per ordinary share from discontinued operations – – (12.6) (12.6) Diluted earnings per ordinary share 6.5 (1.2) – 5.3

Statement of Comprehensive Income £m £m £m £m Profit for the period 44 (9) – 35 Retirement benefit liabilities – actuarial movements (126) 11 – (115) – tax 20 (2) – 18 Items which will not subsequently be reclassified to the income statement (106) 9 – (97) Items which will subsequently be reclassified to the income statement 244 – – 244 Total comprehensive income for the period 182 – – 182

Balance sheet Retirement benefit liabilities (338) 5 – (333) Deferred tax assets 117 (1) – 116 Net assets 1,309 4 – 1,313

Retained profits 248 4 – 252 Equity 1,309 4 – 1,313

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39 Financial instruments 39.1 Capital risk management The Group and Company manage their capital to ensure their ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The components of capital are as follows: equity attributable to equity holders of the Company comprising issued ordinary share capital, reserves and retained earnings as disclosed in Notes 29.1 and 30; preference shares as disclosed in Note 29.2; US private placement as disclosed in Note 26; convertible bonds as disclosed in Note 26; and cash and cash equivalents and borrowings as disclosed in Note 26. The Group and Company maintain or adjust their capital structure through the payment of dividends to equity holders, issue of new shares and buyback of existing shares, and drawdown of new borrowings and repayment of existing borrowings. The policy of the Group and the Company is to ensure an appropriate balance between cash, borrowings, other than the non-recourse borrowings of companies engaged in Infrastructure Investments projects, working capital and the value in the Infrastructure Investments investment portfolio. The overall capital risk management strategy of the Group and the Company remains unchanged from 2012.

39.2 Group Categories of financial instruments

Loans and Loans and receivables receivables at Financial at Financial amortised liabilities Available- Held to amortised liabilities Available- Held to cost, cash at for-sale maturity cost, cash at for-sale maturity and cash amortised financial financial and cash amortised financial financial equivalents cost assets assets Derivatives equivalents cost assets assets Derivatives 2013 2013 2013 2013 2013 2012 2012 2012 2012 2012 Group £m £m £m £m £m £m £m £m £m £m Financial assets Fixed rate bonds and treasury stock – – – 35 – – – – 42 – Mutual funds – – 60 – – – – 52 – – PPP financial assets – – 455 – – – – 542 – – Cash and cash equivalents 604 – – – – 542 – – – – Trade and other receivables 1,256 – – – – 1,263 – – – – Derivatives – – – – 2 – – – – 1 Total 1,860 – 515 35 2 1,805 – 594 42 1 Financial liabilities Liability component of preference shares – (94) – – – – (92) – – – Trade and other payables – (2,025) – – – – (2,130) – – – Unsecured borrowings – (602) – – – – (478) – – – Secured borrowings – (3) – – – – (4) – – – PPP non-recourse term loans – (419) – – – – (393) – – – Derivatives – – – – (74) – – – – (143) Total – (3,143) – – (74) – (3,097) – – (143) Net 1,860 (3,143) 515 35 (72) 1,805 (3,097) 594 42 (142) Current year comprehensive income/(expense) excluding share of joint ventures and associates 19 (63) – 2 65 27 (46) 66 2 (12)

Derivatives Financial assets Financial liabilities Financial assets Financial liabilities Non- Non- Non- Non- Current current Total Current current Total Current current Total Current current Total 2013 2013 2013 2013 2013 2013 2012 2012 2012 2012 2012 2012 £m £m £m £m £m £m £m £m £m £m £m £m Foreign currency contracts Held for trading at fair value through profit and loss 2 – 2 (4) – (4) 1 – 1 (1) – (1) Designated as cash flow hedges – – – (1) – (1) – – – (1) – (1) Interest rate swaps Designated as cash flow hedges – – – (14) (55) (69) – – – (18) (123) (141) 2 – 2 (19) (55) (74) 1 – 1 (20) (123) (143)

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39 Financial instruments continued 39.2 Group continued Non-derivative financial liabilities gross maturity The following table details the remaining contractual maturity for the Group’s non-derivative financial liabilities. The table reflects the undiscounted contractual maturities of the financial liabilities including interest that will accrue on those liabilities except where the Group is entitled to and intends to repay the liability before its maturity. The discount column represents the possible future cash flows included in the maturity analysis, such as future interest, that are not included in the carrying value of the financial liability. Maturity profile of the Group’s non-derivative financial liabilities at 31 December

Total PPP non- non-recourse Other derivative project Other financial financial Carrying finance borrowings liabilities liabilities Discount value 2013 2013 2013 2013 2013 2013 £m £m £m £m £m £m Due on demand or within one year (11) (170) (1,872) (2,053) 13 (2,040) Due within one to two years (14) (1) (91) (106) 15 (91) Due within two to five years (34) (280) (57) (371) 63 (308) Due after more than five years (534) (185) (191) (910) 206 (704) (593) (636) (2,211) (3,440) 297 (3,143) Discount 174 31 92 297 Carrying value (419) (605) (2,119) (3,143)

Total PPP non- non-recourse Other derivative project Other financial financial Carrying finance borrowings liabilities liabilities Discount value 2012 2012 2012 2012 2012 2012 £m £m £m £m £m £m Due on demand or within one year (14) (477) (1,991) (2,482) 13 (2,469) Due within one to two years (11) (1) (66) (78) 13 (65) Due within two to five years (65) (2) (61) (128) 48 (80) Due after more than five years (577) (2) (209) (788) 305 (483) (667) (482) (2,327) (3,476) 379 (3,097) Discount 274 – 105 379 Carrying value (393) (482) (2,222) (3,097)

Derivative financial liabilities gross maturity The following table details the Group’s expected maturity for its derivative financial liabilities. The table reflects the undiscounted net cash inflows/(outflows) on the derivative instruments that settle on a net basis (interest rate swaps) and undiscounted gross inflows/ (outflows) for those derivatives that are settled on a gross basis (foreign exchange contracts). When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates, using the yield curves at the reporting date. Maturity profile of the Group’s derivative financial liabilities at 31 December

Payable Receivable Net payable Payable Receivable Net payable 2013 2013 2013 2012 2012 2012 £m £m £m £m £m £m Due on demand or within one year (285) 263 (22) (205) 184 (21) Due within one to two years (21) 7 (14) (27) 8 (19) Due within two to five years (17) 4 (13) (60) 6 (54) Due after more than five years (84) – (84) (121) – (121) Total (407) 274 (133) (413) 198 (215)

Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk; credit risk; and liquidity risk. The Group’s financial risk management strategy seeks to minimise the potential adverse effect of these risks on the Group’s financial performance. Financial risk management is carried out centrally by Group Treasury under policies approved by the Board. Group Treasury liaises with the Group’s operating companies to identify, evaluate and hedge financial risks. The Board provides written principles for overall financial risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is monitored through the Group’s internal audit and risk management procedures. The Group uses derivative financial instruments to hedge certain risk exposures. The Group does not trade in financial instruments, including derivative financial instruments, for speculative purposes.

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39 Financial instruments continued 39.2 Group continued (a) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: • forward foreign exchange contracts to hedge the exchange rate risk arising on trading activities transacted in a currency that is not the functional currency of the operating company • interest rate swaps to mitigate the cash flow variability in Infrastructure Investments concessions arising from variable interest rates on borrowings. There has been no material change to the Group’s exposure to market risks and there has been no change in how the Group manages those risks since 2012. (i) Foreign currency risk management The Group operates internationally and is exposed to foreign exchange risk arising from exposure to various currencies, primarily to US dollars, euros, Australian dollars, Hong Kong dollars and United Arab Emirate dirhams. Foreign exchange risk arises from future trading transactions, assets and liabilities and net investments in foreign operations. Group policy requires operating companies to manage their transactional foreign exchange risk against their functional currency. At 31 December 2013 no individual entities within the Group had material financial assets or liabilities in a functional currency other than their own. Whenever a current or future foreign currency exposure is identified with sufficient reliability Group Treasury enters into forward contracts on behalf of operating companies to cover 100% of foreign exchange risk above materiality levels determined by the Chief Financial Officer. Refer to page 146 for details of forward foreign exchange contracts outstanding at the reporting date in respect of foreign currency transactional exposures. As at 31 December 2013, the notional principal amounts of foreign exchange contracts in respect of foreign currency transactions where hedge accounting is not applied was £324m (2012: £274m) receivable and £325m (2012: £287m) payable with related cash flows expected to occur up to four (2012: five) years. The foreign exchange gains or losses resulting from fair valuing these unhedged foreign exchange contracts will affect the income statement throughout the same periods. The Group has designated forward exchange contracts with a notional principal amount of £63m (2012: £21m) receivable and £66m (2012: £23m) payable as cash flow hedges against highly probable cash flows which are expected to occur in up to four (2012: four) years. Fair value gains on these contracts of £nil (2012: £nil) have been taken to hedging reserves through other comprehensive income. The cumulative amount deferred in the hedging reserves relating to cash flow hedges at the reporting date is £nil (2012: £nil). No significant amounts in relation to hedge ineffectiveness have been charged or credited to the income statement in relation to any foreign exchange cash flow hedges. The Group’s investments in foreign operations are exposed to foreign currency translation risks. The Group does not enter into forward foreign exchange or other derivative contracts to hedge foreign currency denominated net assets. In March 2013 the Group raised US$350m through a US private placement which has been designated as a net investment hedge against changes in the value of the Group’s US net assets due to exchange movements. Exchange movements in the year totalled £19m (2012: £nil). The hedging policy is reviewed periodically. At the reporting date the only change to the hedging policies since 2012 was to designate the US private placement as a net investment hedge. (ii) Interest rate risk management Interest rate risk arises in the Group’s Infrastructure Investments concessions which borrow funds at both floating and fixed interest rates and hold available-for-sale financial assets. Floating rate borrowings expose the Group to cash flow interest rate risk. The Group’s policy to manage this risk is to swap floating rate interest to fixed rate, using interest rate swap contracts. In an interest rate swap, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. The net effect of a movement in interest rates on income would therefore be immaterial. The fair value of interest rate swaps is determined by discounting the future cash flows using the yield curve at the reporting date. During 2013 and 2012, the Group’s PPP subsidiaries’ borrowings at variable rates of interest were denominated in sterling. The notional principal amounts of the outstanding subsidiaries’ interest rate swaps outstanding at 31 December 2013 totalled £357m (2012: £404m) with maturities that match the maturity of the underlying borrowings ranging from one year to 24 years. At 31 December 2013, the fixed interest rates range from 4.3% to 5.1% (2012: 4.2% to 5.1%) and the principal floating rates are LIBOR plus a fixed margin. A 50 basis point increase/decrease in the interest rate in which financial instruments are held would lead to a £2m increase (2012: £8m) /£3m decrease (2012: £9m) in amounts taken directly to other comprehensive income by the Group in relation to the Group’s exposure to interest rates on the available-for-sale financial assets and cash flow hedges of its Infrastructure Investments subsidiaries. Interest rate risk also arises on the Group’s cash and cash equivalents, term deposits and other borrowings. A 50 basis point increase/ decrease in the interest rate of each currency in which these financial instruments are held would lead to a £nil (2012: £nil) increase/£1m (2012: £2m) decrease in the Group’s net finance cost.

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39 Financial instruments continued 39.2 Group continued (a) Market risk continued (iii) Price risk management The Group’s principal price risk exposure arises in its Infrastructure Investments concessions. At the commencement of the concession an element of the unitary payment by the client is indexed to offset the effect of inflation on the concession’s costs. The Group is exposed to price risk to the extent that inflation differs from the index used. (b) Credit risk Credit risk is the risk that a counterparty will default on its contractual obligations, resulting in financial loss. Credit risk arises from cash and cash equivalents, derivative financial instruments and credit exposures to clients, including outstanding receivables and committed transactions. The Group has a policy of assessing the creditworthiness of potential clients before entering into transactions. For cash and cash equivalents and derivative financial instruments the Group has a policy of only using counterparties that are independently rated with a minimum long term credit rating of BBB+. At 31 December 2013 £44m (2012: £37m) did not meet this criterion due to the operational and relationship difficulties in transferring certain balances, however no losses are anticipated from these counterparties. The credit rating of a financial institution will determine the amount and duration for which funds may be deposited under individual risk limits set by the Board of Directors for the Group and subsidiary companies. Management monitors the utilisation of these credit limits regularly. For trade and other receivables credit evaluation is performed on the financial condition of accounts receivable using independent ratings where available or by assessment of the client’s credit quality based on its financial position, past experience and other factors. The Group’s most significant clients are public or regulated industry entities which generally have high credit ratings or are of a high credit quality due to the nature of the client. The maximum exposure to credit risk in respect of the above at 31 December is the carrying value of financial assets recorded in the financial statements, net of any allowance for losses. (c) Liquidity risk The Group manages liquidity risk by maintaining adequate cash balances and banking facilities, continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Details of undrawn committed borrowing facilities are set out in Note 26.1. The maturity profile of the Group’s financial liabilities is set out on page 147. Fair value estimation The Group holds certain financial instruments on the balance sheet at their fair values. The following hierarchy classifies each class of financial asset or liability in accordance with the valuation technique applied in determining its fair value. Level 1 – The fair value is calculated based on quoted prices traded in active markets for identical assets or liabilities. The Group holds available-for-sale investments in mutual funds which are traded in active markets and valued at the closing market price at 31 December. Level 2 – The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows utilising yield curves at the reporting date and taking into account own credit risk. Own credit risk for the Infrastructure Investment swaps is not considered material and is calculated using the following credit valuation adjustment (CVA) calculation: loss given default multiplied by exposure multiplied by probability of default. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the reporting date and yield curves derived from quoted interest rates matching the maturities of the foreign exchange contracts. Own credit risk for the other derivative liabilities is not considered material and is calculated by applying a relevant credit default swap (CDS) rate obtained from a third party. Level 3 – The fair value is based on unobservable inputs. The fair value of the Group’s PPP financial assets is determined in the construction phase by applying an attributable profit margin by reference to the construction margin on non-PPP projects reflecting the construction risks retained by the construction contractor, and fair value of construction services performed. In the operational phase it is determined by discounting the future cash flows allocated to the financial asset at a discount rate which is based on long term gilt rates adjusted for the risk levels associated with the assets. The consequent movement in the fair value is taken to other comprehensive income. There have been no transfers between these categories in the current or preceding year.

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39 Financial instruments continued (c) Liquidity risk continued Fair value estimation continued 2013 2012 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Financial instruments at fair value £m £m £m £m £m £m £m £m Available-for-sale mutual fund financial assets 60 – – 60 52 – – 52 Available-for-sale PPP financial assets – – 455 455 – – 542 542 Financial assets – foreign currency contracts – 2 – 2 – 1 – 1 Total assets measured at fair value 60 2 455 517 52 1 542 595 Financial liabilities – foreign currency contracts – (5) – (5) – (2) – (2) Financial liabilities – interest rate swaps – (69) – (69) – (141) – (141) Total liabilities measured at fair value – (74) – (74) – (143) – (143)

In respect of the Level 3 PPP financial assets, a change in the discount rate would have a significant effect on the value of the asset and a 50 basis points increase/decrease, which represents management’s assessment of a reasonably possible change in the risk adjusted discount rate, would lead to a £22m increase (2012: £28m)/£21m decrease (2012: £26m) in the fair value of the assets taken through other comprehensive income. A reasonably possible change in the attributable profit margin would not have a significant effect on the value of the asset. Refer to Note 20 for a reconciliation of the movement of the opening balance to the closing balance. The carrying values less impairment provision of trade and other receivables and payables approximate their fair values due to their short term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

39.3 Company Categories of financial instruments

Loans and Loans and receivables Financial receivables Financial at amortised liabilities Available- Held to at amortised liabilities Available- Held to cost, cash at for-sale maturity cost, cash at for-sale maturity and cash amortised financial financial and cash amortised financial financial equivalents cost assets assets Derivatives equivalents cost assets assets Derivatives 2013 2013 2013 2013 2013 2012 2012 2012 2012 2012 Company £m £m £m £m £m £m £m £m £m £m Financial assets Cash and cash equivalents – – – – – 43 – – – – Trade and other receivables 1,278 – – – – 1,169 – – – – Derivatives – – – – 4 – – – – 2 Total 1,278 – – – 4 1,212 – – – 2 Financial liabilities Liability component of preference shares – (94) – – – – (92) – – – Trade and other payables – (1,349) – – – – (1,474) – – – Unsecured borrowings – (318) – – – – (466) – – – Derivatives – – – – (7) – – – – (3) Total – (1,761) – – (7) – (2,032) – – (3) Net 1,278 (1,761) – – (3) 1,212 (2,032) – – (1) Current year comprehensive income/(expense) 5 (42) – – – 6 (35) – – –

The Company is responsible for executing all of the Group’s external derivative contracts, except for those in relation to PPP concessions. The Company’s external derivative contracts are matched with derivative contracts issued by the Company to the Group’s operating companies. The Company’s financial assets and financial liabilities measured at fair value are the derivative foreign currency contracts shown in the table above. The fair value of these foreign currency contracts is determined using quoted forward exchange rates at the reporting date and yield curves derived from quoted interest rates matching the maturities of the foreign exchange contracts. The Company’s derivatives are classified as Level 2 in the fair value estimation hierarchy detailed above.

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39 Financial instruments continued 39.3 Company continued Non-derivative financial liabilities gross maturity Maturity profile of the Company’s non-derivative financial liabilities at 31 December Total non- Other derivative financial financial Total Carrying Borrowings liabilities liabilities discount value 2013 2013 2013 2013 2013 £m £m £m £m £m Due on demand or within one year (106) (1,337) (1,443) 13 (1,430) Due within one to two years – (11) (11) 11 – Due within two to five years (24) (37) (61) 32 (29) Due after more than five years (188) (148) (336) 34 (302) (318) (1,533) (1,851) 90 (1,761) Discount – 90 90 Carrying value (318) (1,443) (1,761)

Total non- Other derivative financial financial Total Carrying Borrowings liabilities liabilities discount value 2012 2012 2012 2012 2012 £m £m £m £m £m Due on demand or within one year (466) (1,461) (1,927) 12 (1,915) Due within one to two years – (11) (11) 11 – Due within two to five years – (35) (35) 32 (3) Due after more than five years – (161) (161) 47 (114) (466) (1,668) (2,134) 102 (2,032) Discount – 102 102 Carrying value (466) (1,566) (2,032)

Derivative financial liabilities gross maturity Maturity profile of the Company’s derivative financial liabilities at 31 December Payable Receivable Payable Receivable 2013 2013 2012 2012 £m £m £m £m Due on demand or within one year (315) 313 (245) 195 Due within one to two years (14) 14 (4) 4 Due within two to five years (6) 6 (3) 4 Due after more than five years (56) 54 – – Total (391) 387 (252) 203

Financial risk factors (a) Market risk (i) Foreign currency risk management For the Company, there would be no material effect of any strengthening/weakening in US dollar, euro, Australian dollar, Hong Kong dollar or United Arab Emirates dirham exchange rates against sterling. The Company’s external forward foreign exchange contracts hedge the currency risk on foreign currency loans entered into with Group companies or are offset by forward foreign exchange contracts with the Group’s operating companies where Group Treasury is hedging the exchange rate risk arising on trading activities on their behalf. (ii) Interest rate risk management A 50 basis point increase/decrease in the interest rate of each currency in which financial instruments are held would lead to a £10m (2012: £8m) increase/decrease in the Company’s net finance cost. This is mainly attributable to the Company’s exposure to UK interest rates on its cash and cash equivalents and term deposits and amounts due to and from its subsidiaries. There would be no effect on amounts taken directly by the Company to other comprehensive income. (b) Credit risk The Company bears credit risk in respect to trade and other receivables and payables due from/to subsidiaries. There were no amounts past due at the reporting date. The maximum exposure is the carrying value of the financial assets recorded in the financial statements.

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40 Audit exemptions taken for subsidiaries 41 Principal subsidiaries, joint ventures and associates The following subsidiaries are exempt from the requirements Country of under the Companies Act 2006 relating to the audit of individual incorporation financial statements by virtue of Section 479A of the Act. or registration

Company (a) Principal subsidiaries registration Professional, Construction and Support Services number Balfour Beatty Civil Engineering Ltd Balfour Beatty Building Ltd 1881683 Balfour Beatty Construction Group Inc US Balfour Beatty CE Ltd 2306280 Balfour Beatty Engineering Services Ltd Scotland Balfour Beatty Construction International Ltd 1878848 Balfour Beatty Group Ltd Balfour Beatty Education Ltd 6863458 Balfour Beatty Infrastructure Inc US Balfour Beatty Engineering Solutions Ltd 1531651 Balfour Beatty Rail GmbH Germany Balfour Beatty International Ltd 920030 Balfour Beatty Rail Inc US Balfour Beatty Living Places Ltd 2067112 Balfour Beatty Rail Ltd Balfour Beatty Management Ltd 4590162 Balfour Beatty Rail SpA Italy Balfour Beatty Projects and Engineering Ltd 169240 Balfour Beatty Utility Solutions Ltd Balfour Beatty Rail Investments Ltd 3048949 Mansell Construction Services Ltd Balfour Beatty Rail Track Systems Ltd 2311350 Parsons Brinckerhoff (Asia) Ltd Hong Kong Balfour Beatty Refurbishment Ltd 3107653 Parsons Brinckerhoff Australia Pty Ltd Australia Balfour Beatty Regional Civil Engineering Ltd SC382011 Parsons Brinckerhoff Group Inc US Balfour Beatty Utility Solutions Ltd 1062438 Parsons Brinckerhoff Inc US Connect Roads Infrastructure Investments Ltd 7276835 Parsons Brinckerhoff International Pte Ltd Singapore Consort Healthcare Infrastructure Investments Ltd 6859623 Parsons Brinckerhoff Ltd Dean & Dyball Rail Ltd 5503947 Infrastructure Investments EIMCO Ltd 3159250 (refer Note 41) Heery International Ltd 2759565 Balfour Beatty Communities LLC US Painter Brothers Ltd 238081 Balfour Beatty Infrastructure Investments Ltd* Parsons Brinckerhoff Group Holdings Ltd 3515454 Balfour Beatty Investments Inc US Parsons Brinckerhoff Holdings Ltd 3640733 Balfour Beatty Investments Ltd Parsons Brinckerhoff Investments Ltd 3599313 Other SEIMCO Ltd 3159074 Balfour Beatty Group Inc US The Telegraph Construction and Maintenance Balfour Beatty Investment Holdings Ltd * Company Ltd 1147 Balfour Beatty LLC US Delphian Insurance Company Ltd* Isle of Man

Country of Ownership incorporation interest or registration % (b) Principal joint ventures and associates Professional, Construction and Support services BK Gulf LLC Dubai 49.0 Dutco Balfour Beatty LLC Dubai 49.0 Gammon China Ltd Hong Kong 50.0 Denver Transit Constructors LLC US 30.0

(c) Principal jointly controlled operations The Group carries out a number of its larger contracts in joint arrangement with other contractors so as to share resources and risk. The principal joint projects in progress during the year are shown below. South-East England Roads 65.0 Crossrail 26.7 M25 Maintenance 52.5 M25 LUS 50.0 Gotthard Base Tunnel Switzerland 25.0 Carl R. Darnall Army Medical Center US 50.0 Parkland Acute Care Hospital US 40.0 DFW Terminal Development Program US 60.0

Notes (i) Subsidiaries, joint ventures and associates whose results did not, in the opinion of the Directors, materially affect the results or net assets of the Group are not shown. (ii) Unless otherwise stated, 100% of the equity capital is owned and companies are registered in England and Wales and the principal operations of each company are conducted in the country of incorporation.

* Indicates held directly by Balfour Beatty plc.

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41 Principal subsidiaries, joint ventures and associates continued (d) Balfour Beatty Investments UK Roads Summary Balfour Beatty is a promoter, developer and investor in 12 road and street lighting projects under Balfour Beatty’s Connect brand to construct new roads, to upgrade and maintain existing roads and to replace and maintain street lighting. Contractual arrangements The principal contract in the roads concessions is the project agreement with the governmental highway authority setting out the obligations for the construction, operation and maintenance of the roads including lifecycle replacement by Connect for the life of the concession to specified standards. In the case of M1-A1, A30/A35 and A50 the inflation-indexed payment is related to traffic volumes. In the case of M77/GSO and CNDR, the inflation-indexed payment is partly based on availability and partly on traffic volumes, and is subject to any performance related deductions. In the case of M25, the inflation-indexed payment is wholly based on availability and is subject to any performance related deductions. Construction of the roads was subcontracted to construction joint ventures in which Balfour Beatty had a 50% interest or, in the case of the M77/GSO and CNDR, 100% to Balfour Beatty subsidiaries. On the street lighting projects, payment is by a periodic inflation-indexed availability payment subject to performance deductions and the replacement and maintenance obligations have been subcontracted to a Balfour Beatty subsidiary. There are no provisions to reprice the contracts and all assets transfer to the client at the end of the concessions.

Total debt and equity funding Financial Duration Construction Concession company (i) Project £m Shareholding close years completion Connect M1-A1 Ltd 30km road 290 50% March 1996 30 1999 Connect A50 Ltd 57km road 42 25% May 1996 30 1998 Connect A30/A35 Ltd 102km road 127 20% July 1996 30 2000 Connect M77/GSO plc (ii) 25km road 167 85% May 2003 32 2005 Connect Roads Sunderland Ltd Street lighting 27 100% August 2003 25 2008 Connect Roads South Street lighting 28 100% December 2005 25 2010 Tyneside Ltd Connect Roads Derby Ltd Street lighting 36 100% April 2007 25 2012 Connect Plus (M25) Ltd J16 – J23, J27 – J30 and 1,309 40% May 2009 30 2012 A1(M) Hatfield Tunnel Connect CNDR Ltd Carlisle Northern 176 25% July 2009 30 2012 Development Route Connect Roads Coventry Ltd Street lighting 56 100% August 2010 25 2015 Connect Roads Cambridgeshire Ltd Street lighting 51 100% April 2011 25 2016 Connect Roads Northamptonshire Ltd Street lighting 64 100% August 2011 25 2016

Notes (i) Registered in England and Wales and the principal operations of each company are in England and Wales, except Connect M77/GSO plc which conducts its principal operations in Scotland. (ii) Due to the shareholders’ agreement between Balfour Beatty and the other shareholder requiring unanimity of agreement in respect of significant matters related to the financial and operating policies of this company, the Directors consider that the Group does not control this company and it has been accounted for as a joint venture.

Hospitals Summary Balfour Beatty is a promoter, developer and investor in five hospital projects under Balfour Beatty’s Consort Healthcare brand to build hospital accommodation and to provide certain non-medical facilities management services over the concession period. Contractual arrangements The principal contract is the project agreement between the concession company and the NHS Trust. An inflation-indexed payment is primarily based upon availability of the hospital subject to any performance related deductions. The only projects where construction of the hospitals was subcontracted to construction joint ventures in which Balfour Beatty subsidiaries did not participate 100% is Edinburgh Royal Infirmary where the Group’s share was 85%. The payments for the facilities management services are repriced every five years. All assets transfer to the client at the end of the concession, with the exception of Edinburgh Royal Infirmary, where the client has the option to terminate the arrangement for the provision of the hospital and the services in 2028.

Total debt and equity funding Duration Construction Concession company (i) Project £m Shareholding Financial close years completion Consort Healthcare (Durham) Ltd Teaching hospital 90 50% March 1998 30 2001 Consort Healthcare Teaching hospital and 220 50% August 1998 30 2003 (Edinburgh Royal Infirmary) Ltd medical school Consort Healthcare (Birmingham) Ltd Teaching hospital and mental 553 40% June 2006 40 2011 health hospital Consort Healthcare (Mid Yorkshire) Ltd Pinderfields and Pontefract 311 50% June 2007 35 2010 general hospitals Consort Healthcare (Fife) Ltd General hospital 170 50% April 2009 30 2011

Notes (i) Registered in England and Wales and the principal operations of each company are in England and Wales, except Consort Healthcare (Edinburgh Royal Infirmary) Ltd and Consort Healthcare (Fife) Ltd which are registered and conduct their principal operations in Scotland.

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41 Principal subsidiaries, joint ventures and associates continued (d) Balfour Beatty Investments UK continued Schools Summary Balfour Beatty is a promoter, developer and investor in nine schools projects principally under Balfour Beatty’s Transform Schools brand to design, build or refurbish schools and to provide certain non-educational services over the concession period under the UK Government Building Schools for the Future (BSF) programme. Contractual arrangements The principal contract is the project agreement between the concession company and the local authority that provides for an inflation-indexed payment based upon availability subject to any performance related deductions. For projects other than Aura Newcastle Ltd, construction is subcontracted to construction joint ventures of Balfour Beatty subsidiaries and the facilities management services are subcontracted to a Balfour Beatty subsidiary (disposed of in the year). Construction and facilities management services on Aura Newcastle are carried out by subsidiaries of other shareholders. The payments for the facilities management services are repriced every five years. All assets transfer to the client at the end of the concession.

Total debt and equity funding Duration Construction Concession company (i) Project £m Shareholding Financial close years completion Aura Newcastle Ltd BSF 47 20% July 2007 25 2012 Transform Schools (Knowsley) Ltd BSF 163 100% December 2007 27 2010 Transform Islington Ltd (ii) BSF 77 80% July 2008 26 2013 4 Futures Ltd (ii) BSF 70 80% May 2009 26 2014 Blackburn with Darwen and Bolton LEP Ltd (ii) BSF 85 80% January 2010 25 2011 Derby City BSF Partnership Ltd (ii) BSF 39 80% December 2010 25 2012 Future Ealing Ltd (ii) BSF 36 80% December 2010 25 2012 Oldham Education Partnership Ltd (ii) BSF 40 90% December 2010 25 2012 Hertfordshire Schools Building Partnership Ltd (ii) BSF 55 80% January 2011 25 2012

Notes (i) Registered in England and Wales and the principal operations of each company are in England and Wales. (ii) Due to the shareholders’ agreement between Balfour Beatty and the other shareholders requiring unanimity of agreement in respect of significant matters related to the financial and operating policies of this company, the Directors consider that the Group does not control this company and it has been accounted for as a joint venture.

Other concessions Summary The Powerlink project comprises two companies: UK Power Networks Services Powerlink Ltd (UKPNSPL), which operated the London Underground high voltage power system under a 30-year contract and was responsible for procuring various new power assets, and Power Asset Development Company Ltd (PADCO), which constructed the new-build power assets and leased them to UKPNSPL. Pevensey Coastal Defence Ltd (PCDL) has a 25-year contract with the Environment Agency to maintain a shingle bank sea defence in East Sussex. Gammon Capital (West) Pte Ltd has a contract to design, build and finance the new Institute of Technical Education (ITE) College West in Singapore and provide long term facilities management services for the remainder of the 27-year project. Balfour Beatty Fire and Rescue NW Ltd is contracted to design, construct, fund and provide facilities for 16 community fire stations in Merseyside, Cumbria and Lancashire. UBB Waste (Essex) Ltd has a 28-year PPP contract to design, build and operate a new sustainable waste treatment facility for Essex County Council and Southend-on-Sea Borough Council. UBB Waste (Gloucestershire) Ltd has a 28-year PPP contract to design, build and operate a new sustainable waste treatment facility for Gloucestershire County Council. Holyrood Student Accommodation involves the design, construction, financing, operation and maintenance of a 1,153 bed student accommodation facility in the centre of Edinburgh. Aberystwyth Student Accommodation involves the design, construction, operation and maintenance of a 1,000 bed student accommodation facility adjacent to the Penglais Campus of Aberystwyth University. Greater Gabbard involves the operation of transmission assets of the Greater Gabbard offshore wind farm project located off the Sussex coast, as part of the Offshore Transmission Owners (OFTO) regulatory regime. Contractual arrangements For the Powerlink project the principal project agreement is the power services contract between UKPNSPL and London Underground Ltd (LUL) that provided for an inflation-indexed availability payment subject to any performance deductions. UKPNSPL operates and maintains the power network using its own staff and is leasing the new power assets from PADCO, which subcontracted construction to a construction joint venture in which the Group had a 40% interest. LUL has exercised its right to terminate the contract in August 2013. PCDL’s principal contract is the flood defence services agreement with the Environment Agency that provides for an inflation-indexed payment subject to any performance related deductions. For the Singapore project, the principal agreement is the project agreement with the ITE of Singapore that provides for an inflation-indexed availability based payment subject to any performance deductions. Construction is subcontracted to Gammon Pte Ltd, a wholly owned subsidiary of Gammon China Ltd in which the Group has a 50% interest. The facilities management services under the ITE agreement are provided by a third party. The principal contract for Balfour Beatty Fire and Rescue NW Ltd is the project agreement between the concession company and Cumbria County Council, Lancashire Combined Fire Authority and Merseyside Fire and Rescue Authority. This agreement provides for an inflation-indexed payment based upon availability subject to any performance related deductions. Construction and facility management services are subcontracted to Balfour Beatty subsidiaries. The principal contract for UBB Waste (Essex) Ltd is the project agreement between the concession company, Essex County Council and Southend-on-Sea Borough Council. This agreement provides for an inflation-indexed payment linked to both the availability of the plant and waste processed. Construction services are subcontracted to a joint venture in which the Group has a 30% interest and operations are subcontracted to a subsidiary of the other shareholder. There are no provisions to reprice contracts and all assets transfer to the client at the end of the concession. The principal contract for UBB Waste (Gloucestershire) Ltd is the project agreement between the concession company and Gloucestershire County Council. This agreement provides for an inflation-indexed payment linked to both the availability of the plant and waste processed. Greater Gabbard OFTO Ltd will operate and maintain the transmission assets under the terms of a perpetual licence granted by Ofgem which contains the right to be paid a revenue stream over a 20 year period on an availability basis. At Aberystwyth the unitary payment is based upon availability subject to any performance related deductions. At Edinburgh the unitary payment is based upon fluctuations in rental demand and subject to any performance related deductions.

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41 Principal subsidiaries, joint ventures and associates continued (d) Balfour Beatty Investments UK continued Other concessions continued Total debt and equity funding Duration Construction Concession company (i) Project £m Shareholding Financial close years completion UK Power Networks Services Powerlink Ltd (ii)/ London Underground 184 10%/25% August 1998 30 2006 Power Asset Development Company Ltd power system Pevensey Coastal Defence Ltd Sea defences 3 25% July 2000 25 n/a Gammon Capital (West) Pte Ltd Technical education college 100 50% August 2008 27 2010 Balfour Beatty Fire and Rescue NW Ltd Fire stations 55 100% February 2011 25 2013 UBB Waste (Essex) Ltd Waste processing plant 146 30% May 2012 28 2015 UBB Waste (Gloucestershire) Ltd Waste processing plant 209 49.5% February 2013 28 2017 Holyrood Student Accommodation SPV Ltd Student accommodation 82 100% July 2013 50 2016 Aberystwyth Student Accommodation Ltd Student accommodation 51 100% July 2013 35 2015 Greater Gabbard OFTO Ltd Offshore transmission 351 33.3% November 2013 20 n/a

Notes (i) Registered in England and Wales and the principal operations of each company are in England and Wales, except Gammon Capital (West) Pte Ltd which is registered and conducts its principal operations in Singapore. (ii) The Group exercises significant influence through its participation in the management of UK Power Networks Services Powerlink Ltd and therefore accounts for its interest as an associate.

(e) UK developer projects Summary Balfour Beatty is an investor in and a promoter and developer of other PPP infrastructure investments. Project descriptions The Project involves the design, construction, financing, operation and maintenance of a 9.3 MW waste wood gasifier located at Tyseley Energy Park, Birmingham.

Total project funding Company (i) Project £m Shareholding Financial close Birmingham Bio Power Waste wood gasifier 53 37.5% December 2013

Notes (i) Registered in England and Wales and the principal operations of each company are conducted in England and Wales. (ii) Shareholding quoted is economic interest.

(f) Balfour Beatty Investments North America Military housing Summary Balfour Beatty through its subsidiary Balfour Beatty Communities LLC is a manager, developer, and investor in a number of US military privatisation projects associated with a total of 54 US government military bases which includes 54 military family housing communities and one unaccompanied personnel housing community that are expected to contain approximately 42,500 housing units once development, construction and renovation are complete. The projects comprise 11 military family housing privatisation projects with the United States Department of the Army (Army), seven projects with the United States Department of the Air Force (Air Force) and two projects with the United States Department of the Navy (Navy). In addition, there is one unaccompanied personnel housing (UPH) project with the Army at Fort Stewart. Contractual arrangements The first phase of the project, known as the initial development period, covers the period of initial construction or renovation of military housing on a base, typically lasting three to eight years. With respect to Army and Navy projects, the government becomes a member or partner of the project entity (Project LLC); the Air Force is not a named partner or member in Balfour Beatty Communities’ Project LLCs, however it contributes a commitment to provide a government direct loan to the Project LLC and has similar rights to share in distributions and cash flows of the Project LLC. On each project, the Project LLC enters into a ground lease with the government, which provides the Project LLC with a leasehold interest in the land and title to the improvements on the land for a period of 50 years. Each of these military housing privatisation projects includes agreements covering the management, renovation, and development of existing housing units, as well as the development, construction, renovation and management of new units during the term of the project, which, in the case of the Army, could potentially extend for up to an additional 25 years. The 50-year duration of each project calls for continuous renovation, rehabilitation, demolition and reconstruction of housing units. At the end of the ground lease term the Project LLC’s leasehold interest terminates and all project improvements on the land generally transfer to the government. Preferred returns The projects will typically receive, to the extent that adequate funds are available, an annual minimum preferred rate of return. On most existing projects, this annual minimum preferred rate of return ranges from 9% to 12% of Balfour Beatty Communities’ initial equity contribution to the project. During the initial development period, the project is precluded from distributing funds to pay the minimum preferred rate of return. The unpaid amounts will generally accrue and accumulate, and can be used to fund renovation and construction costs, if necessary. If the accumulated funds are not needed to fund renovation and construction costs, at the end of the initial development period they are distributed to pay accrued preferred returns to Balfour Beatty Communities and the government in accordance with the terms of the project agreements.

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41 Principal subsidiaries, joint ventures and associates continued (f) Balfour Beatty Investments North America continued Military housing continued Allocation of remaining operating cash flows Subsequent to the initial development period, any operating cash flow remaining after the annual minimum preferred rate of return is paid is shared between Balfour Beatty Communities and the reinvestment account held by the project for the benefit of the government. On most of the existing projects, the total amount that Balfour Beatty Communities is entitled to receive (inclusive of the preferred return) is generally capped at an annual modified rate of return, or cash-on-cash return, on its initial equity contribution to the project. Historically, these caps have ranged between approximately 9% to 18% depending on the particular project and the type of return (annual modified rates of return or cash-on-cash). However, in some of the more recent projects, there are either no annual caps or lower projected annual rates of return. The total capped return generally will include the annual minimum preferred return discussed above. The reinvestment account is an account established for the benefit of the military, but funds may be withdrawn for construction, development and renovation costs during the remaining life of a privatisation project upon approval by the applicable military service. Return of equity Generally, at the end of a project term, any monies remaining in the reinvestment account are distributed to Balfour Beatty Communities and the Army, Navy or Air Force, in a predetermined order of priority. Typically these distributions will have the effect of providing the parties with sufficient funds to provide a minimum annual return over the life of the project and a complete return of the initial capital contribution. After payment of the minimum annual return and the return of a party’s initial contribution, all remaining funds will typically be distributed to the applicable military service.

Total project funding Duration Construction Military privatisation project (i)(ii) Bases £m Financial close years completion Military family housing Fort Carson Army base 107 November 2003 46 2004 – Fort Carson expansion 79 November 2006 43 2010 – Fort Carson GTA expansion 60 April 2010 39 2013 Fort Stewart/Hunter Airfield Two army bases 229 November 2003 50 2012 Fort Hamilton Army base 37 June 2004 50 2009 Walter Reed Army Medical Center/Fort Detrick Two army bases 68 July 2004 50 2008 Navy Northeast Region Seven navy bases 301 November 2004 50 2010 Fort Eustis/Fort Story Two army bases 106 March 2005 50 2011 – Fort Eustis expansion 5 July 2010 45 2011 – Fort Eustis – Marseilles Village 16 March 2013 42 2015 Fort Bliss/White Sands Missile Range Two army bases 259 July 2005 50 2011 – Fort Bliss expansion 29 December 2009 46 2011 – Fort Bliss GTA expansion phase I 99 July 2011 44 2014 – Fort Bliss GTA expansion phase II 89 November 2012 43 2016 Fort Gordon Army base 66 May 2006 50 2012 Carlisle/Picatinny Two army bases 51 July 2006 50 2011 – Carlisle Heritage Heights phase II 13 October 2012 44 2014 AETC Group 1 Four air force bases 217 February 2007 50 2012 Navy Southeast Region 11 navy bases 346 November 2007 50 2013 Vandenberg Air force base 94 November 2007 50 2012 Fort Leonard Wood Army base 143 Acquired June 2008 47 2014 AMC West Three air force bases 266 July 2008 50 2015 West Point Army base 133 August 2008 50 2016 Fort Jackson Army base 110 October 2008 50 2013 Lackland Air force base 68 Acquired December 2008 50 2013 Western Group Four air force bases 199 March 2012 50 2017 Northern Group Six air force bases 261 August 2013 50 2019 Military unaccompanied personnel housing Fort Stewart UPH 22 January 2008 50 2010

Notes (i) Registered in the US and the principal operations of each project are conducted in the US. (ii) The share of results of the military housing joint ventures of Balfour Beatty Communities is limited to a pre-agreed preferred return on funds invested.

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41 Principal subsidiaries, joint ventures and associates continued (g) Balfour Beatty Investments UK and North America Student accommodation Summary Through its subsidiary, Balfour Beatty Campus Solutions LLC, Balfour Beatty is a manager on one student accommodation project, where it acted as a developer and until December 2012 as a bond investor, and is a developer and owner of two further student accommodation projects. Contractual arrangements The principal contract in the Florida Atlantic University project is the property management agreement with the state university setting out the obligations for the operation and maintenance of the student accommodation project. The principal contracts in the two student accommodation projects where Balfour Beatty is an owner are the ground leases, development leases and operating agreements with the state universities setting out the obligations for the construction, operation and maintenance of the student accommodation including lifecycle replacement during the concession period.

Total project funding Duration Construction Student accommodation project (i) Project £m Shareholding Financial close years completion Florida Atlantic University Student accommodation 61 (ii) March 2010 30 2011 University of Iowa Student accommodation 19 100% June 2013 41 2014 University of Nevada, Reno Student accommodation 13 100% August 2013 43 2014

Notes (i) Registered in the US and the principal operations of each project are conducted in the US. (ii) 50% holding in the management company. The Company held US$3m of bonds in the concession company until December 2012.

(h) Total future committed equity and debt funding for Infrastructure Investments’ project companies

2017 2014 2015 2016 onwards Total Concessions £m £m £m £m £m UK Roads – 6 11 – 17 Hospitals – – – – – Schools 4 – – – 4 Student accommodation 2 13 1 – 16 Infrastructure – – – – – Other UK 57 10 21 – 88 63 29 33 – 125 North America Military housing 2 – 2 – 4 Student accommodation 8 – – – 8 10 – 2 – 12 73 29 35 – 137 Projects at preferred bidder stage 50 – – – 50 Projects at financial close 23 29 35 – 87 Total 73 29 35 – 137

(i) UK airport project Summary Balfour Beatty is an investor in and a promoter of an airport investment. Project descriptions Blackpool Airport Ltd owns and operates Blackpool International Airport.

Total project funding Company (i) Project £m Shareholding Financial close Blackpool Airport Ltd (ii) Blackpool International Airport 14 95% May 2008

Notes (i) Registered in England and Wales and the principal operations of each company are conducted in England and Wales. (ii) Shareholding quoted is economic interest.

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UNAUDITED Group Five-Year Summary

2013 2012^ 2011^ 2010^ 2009^ £m £m £m £m £m Income Revenue including share of joint ventures and associates 10,118 9,966 10,036 9,519 9,385 Share of revenue of joint ventures and associates (1,373) (1,310) (1,382) (1,086) (1,148) Group revenue from continuing operations 8,745 8,656 8,654 8,433 8,237 Underlying profit from continuing operations 203 284 303 291 234 Underlying net investment income/(finance costs) (16) (7) (11) (26) (13) Underlying profit before taxation 187 277 292 265 221 Amortisation of acquired intangible assets (30) (39) (57) (80) (45) Other non-underlying items (125) (91) (21) (21) 33 Profit from continuing operations before taxation 32 147 214 164 209 Taxation on profit from continuing operations (15) (26) (52) (37) (42) Profit from continuing operations after taxation 17 121 162 127 167 Profit/(loss) from discontinued operations after taxation (52) (86) 11 9 45 Profit for the year attributable to equity holders (35) 35 173 136 212

Capital employed Equity holders’ funds 1,033 1,310 1,259 1,156 995 Liability component of preference shares 94 92 91 89 88 Net borrowings/(cash) 420 333 (8) (248) (324) 1,547 1,735 1,342 997 759

2013 2012 2011 2010 2009 Pence Pence Pence Pence Pence Statistics Underlying earnings per ordinary share from continuing operations* 20.0 31.7 31.2 36.7 28.1 Basic (loss)/earnings per ordinary share from continuing operations (5.1) 17.9 23.7 26.3 29.3 Diluted (loss)/earnings per ordinary share from continuing operations (5.1) 17.9 23.7 26.2 29.2 Proposed dividends per ordinary share 14.10 14.10 13.80 12.70 11.99 Underlying profit from continuing operations before net investment income/(finance costs) including share of joint ventures and associates as a percentage of revenue including share of joint ventures and associates 2.0% 2.8% 3.0% 3.1% 2.5%

Notes * Underlying earnings per ordinary share from continuing operations have been disclosed to give a clearer understanding of the Group’s underlying trading performance. ^ Prior years 2009-2012 have been: – Restated to reflect the effects of IAS 19 Employee Benefits (Revised) (Note 38). – Re-presented to classify certain Mainland European rail businesses and the UK facilities management business as discontinued operations (Notes 12 and 38).

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Shareholder Information

Financial calendar Unsolicited telephone calls 2014 In the past, some of our shareholders 23 April Ex-dividend date for final 2013 ordinary dividend have received unsolicited telephone calls 25 April Final 2013 ordinary dividend record date or correspondence concerning investment 15 May Annual General Meeting matters from organisations or persons 21 May Ex-dividend date for July 2014 preference dividend claiming or implying that they have some 23 May July 2014 preference dividend record date connection with the Company. These are 4 June Final date for receipt of DRIP mandate forms (see below) typically from overseas based "brokers" 1 July Preference dividend payable who target UK shareholders offering 4 July* Final 2013 ordinary dividend payable to sell them what often turn out to be 14 August* Announcement of 2014 half-year results worthless or high-risk shares in UK or 5 December* Interim 2014 ordinary dividend payable overseas investments. Shareholders are advised to be very wary of any unsolicited * Provisional dates. advice, offers to buy shares at a discount or offers of free reports on the Company. Registrars International payment service If you receive any unsolicited All administrative enquiries relating to Shareholders outside the UK may elect investment advice: shareholdings and requests to receive to receive dividends direct into their corporate documents by email should, overseas bank account, or by currency • always ensure the firm is on the in the first instance, be directed to the draft, instead of by sterling cheque. Financial Conduct Authority (FCA) Company’s Registrars and clearly state For further information, contact the Register and is allowed to give financial your registered address and, if available, Company’s Registrars on +44 20 8639 advice before handing over your money. your shareholder reference number. 3405 (from outside the UK) or 0871 664 You can check via http://www.fsa.gov. Please write to: 0385 from the UK (calls cost 10p per uk/register/home.do minute plus network extras). Lines Capita Asset Services, The Registry, • double-check the caller is from the firm are open Monday to Friday 9.00 am to 34 Beckenham Road, Beckenham, Kent they say they are – ask for their name 5.30 pm, UK time. Alternatively, you can BR3 4TU, Telephone: 0871 664 0300 and telephone number and say you log on to www.balfourbeatty-shares.com from the UK (calls cost 10p per minute will call them back. Check their identity and click on the link for International plus network extras) and +44 20 8639 by calling the firm using the contact Payment Service. 3399 from outside the UK (Monday to number listed on the FCA Register. Friday 8.30 am to 5.30 pm, UK time). If there are no contact details on the Shareholder information on the FCA Register or you are told that they Alternatively, you can email: shareholder. internet and electronic [email protected]. are out of date, or if you have any communications other doubts, call the FCA Consumer They can help you to: check your Our website www.balfourbeatty.com Helpline on 0800 111 6768 shareholding; register a change of address provides a range of information about or name; obtain a replacement dividend the Company, our people and businesses • check the FCA’s list of known cheque or tax voucher; record the death and our policies on corporate governance unauthorised overseas firms at of a shareholder. and corporate responsibility. It should be http://www.fca.org.uk. However, these regarded as your first point of reference firms change names regularly, so even Dividends and dividend for information on any of these matters. if a firm is not listed, it does not mean reinvestment plan The share price can also be found there. they are legitimate. Always check that Dividends may be paid directly into your they are listed on the FCA Register You can create a Share Portal account, bank or building society account through through which you will be able to access • if you are approached about a share the Bankers Automated Clearing System the full range of online shareholder scam, you should inform the FCA (BACS). The Registrars can provide services, including the ability to: view using the share fraud reporting form a dividend mandate form. A dividend your holdings and indicative share price at http://www.fca.org.uk/consumers/ reinvestment plan (DRIP) is offered and valuation; view movements on your scams/investment-scams/share-fraud- which allows holders of ordinary shares holdings and your dividend payment and-boiler-room-scams/reporting-form, to reinvest their cash dividends in the history; register a dividend mandate where you can also find out about the Company’s shares through a specially to have your dividends paid directly latest investment scams or alternatively, arranged share dealing service. Full details into your bank account; change your you can call the FCA Consumer Helpline of the DRIP and its charges, together registered address; sign up to receive (see above). If you use an unauthorised with mandate forms, are available at e-communications or access the online firm to buy or sell shares or other www.balfourbeatty-shares.com. proxy voting facility; download and print investments, you will not have access shareholder forms. to the Financial Ombudsman Service or be eligible to receive payment under The Share Portal is easy to use. Please the Financial Services Compensation visit www.balfourbeatty-shares.com. Scheme if things go wrong Alternatively, you can email: [email protected].

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• you should also report any approach Capital gains tax (CGT) to Action Fraud, who are the UK’s For CGT purposes the market value on national fraud reporting centre at 31 March 1982 of Balfour Beatty plc’s www.actionfraud.police.uk, or by ordinary shares of 50p each was 267.6p calling 0300 123 2040. per share. This has been adjusted for the 1 for 5 rights issue in June 1992, the 2 Gifting shares to your family for 11 rights issue in September 1996 and or to charity the 3 for 7 rights issue in October 2009 To transfer shares to another member and assumes that all rights have been of your family as a gift, please ask the taken up. Registrars for a Balfour Beatty gift transfer form. Alternatively, if you only have a Consolidated tax vouchers small number of shares whose value Balfour Beatty issues a consolidated tax makes it uneconomic to sell them, you voucher annually to all shareholders who may wish to consider donating them have their dividends paid direct to their to the share donation charity ShareGift bank accounts. If you would prefer to (registered charity no. 1052686), receive a tax voucher at each dividend whose work Balfour Beatty supports. payment date rather than annually, The relevant share transfer form may be please contact the Registrars. A copy obtained from the Registrars. For more of the consolidated tax voucher may information visit www.sharegift.org. be downloaded from the Share Portal at www.balfourbeatty-shares.com. Share dealing services Capita Share Dealing Services (a trading Enquiries name of Capita IRG Trustees Limited) Enquiries relating to Balfour Beatty’s provide a telephone and online share results, business and financial position dealing service for UK and EEA resident should be made in writing to the shareholders. To use this service, Corporate Communications Department telephone: 0871 664 0364 from the UK at the address shown below or by email (calls cost 10p per minute plus network to [email protected]. extras) and +44 20 3367 2686 from Balfour Beatty plc Registered Office: outside the UK (Monday to Friday 8.00 am 130 Wilton Road, London SW1V 1LQ to 4.30 pm, UK time). Alternatively, you Registered in England Number 395826 can log on to www.capitadeal.com. Capita IRG Trustees Limited is authorised and regulated by the Financial Conduct Authority and is also authorised to conduct cross-border business within the EEA under the provisions of the EU Markets in Financial Instruments Directive.

London Stock Exchange Codes The London Stock Exchange Daily Official List (SEDOL) codes are: Ordinary shares: 0096162. Preference shares: 0097820. The London Stock Exchange ticker codes are: Ordinary shares: BBY. Preference shares: BBYB.

Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 Forward-looking statements No representation or warranty is made Follow us on: This document may include certain that any of these statements or forecasts forward-looking statements, beliefs or will come to pass or that any forecast opinions, including statements with results will be achieved. Forward-looking Twitter respect to Balfour Beatty plc’s business, statements speak only as at the date of @balfourbeatty financial condition and results of this document and Balfour Beatty plc operations. These forward-looking and its advisers expressly disclaim any statements can be identified by the use obligations or undertaking to release of forward-looking terminology, including any update of, or revisions to, any LinkedIn the terms ‘believes’, ‘estimates’, ‘plans’, forward-looking statements in this linkedin.com/company/balfour-beatty-plc ‘anticipates’, ‘targets’, ‘aims’, ‘continues’, document. No statement in the document ‘expects’, ‘intends’, ‘hopes’, ‘may’, ‘will’, is intended to be, or intended to be ‘would’, ‘could’ or ‘should’ or in each construed as, a profit forecast or to be Facebook case, their negative or other various interpreted to mean that earnings per facebook.com/balfourbeatty or comparable terminology. These Balfour Beatty plc share for the current statements are made by the Balfour or future financial years will necessarily Beatty plc Directors in good faith based match or exceed the historical earnings on the information available to them at the per Balfour Beatty plc share. As a YouTube date of this report and reflect the Balfour result, you are cautioned not to place youtube.com/BalfourBeattyPlc Beatty plc Directors’ beliefs and any undue reliance on such forward- expectations. By their nature these looking statements. statements involve risk and uncertainty Google+ because they relate to events and depend plus.google.com/+BalfourBeattyBBplc on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, developments in the global economy, changes in UK and US government policies, spending and procurement methodologies, failure in Balfour Beatty’s health, safety or environmental policies and those factors set out under ‘Principal Risks’ on pages 20 to 23 of this document.

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